Question 1

Taking out a mortgage to buy a condo, buying a mutual fund, and building a new factory are all examples of investment.

Accepted Answer

A) True 
 B)False

Question 2

In a closed economy, what does (T - G)  represent?

Accepted Answer

A)  national saving
B)  investment
C)  private saving
D)  public savingE) None of the above
F) B) and C)

Question 3

Which of the following statements is correct?

Accepted Answer

A)  A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges.
B)  When a corporation sells bonds as a means of raising funds it is engaging in debt finance.
C)  A share of stock is an IOU.
D)  The two most important financial markets in the economy are the stock market and financial intermediaries.E) A) and B)
F) C) and D)

Question 4

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 5

After 2012 when the U.S. economy recovered,

Accepted Answer

A)  ​the budget deficits shrank, and the increases in the debt-to-GDP ratio became larger.
B)  ​the budget deficits grew, and the decreases in the debt-to-GDP ratio became larger.
C)  ​the budget deficit shrank, and the increases in the debt-to-GDP ratio became smaller.
D)  ​the budget deficits grew, and the decreases in the debt-to-GDP ratio became smaller.E) All of the above
F) A) and B)

Question 6

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the nominal interest rate
B)  the real interest rate
C)  the quantity of investment
D)  the quantity of savingE) A) and D)
F) B) and C)

Question 7

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 8

National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.

Accepted Answer

private saving, publ...

Question 9

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Accepted Answer

A) True 
 B)False

Question 10

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 11

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is...

Question 12

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Accepted Answer

A)  $1.5 trillion and $2.5 trillion, respectively
B)  $2.5 trillion and $1.5 trillion, respectively
C)  $2.5 trillion and $2.5 trillion, respectively
D)  $1.5 trillion and $1.5 trillion, respectivelyE) A) and D)
F) None of the above

Question 13

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Accepted Answer

A)  makes saving more attractive.
B)  makes saving less attractive.
C)  makes investment more attractive.
D)  makes investment less attractive.E) A) and C)
F) B) and D)

Question 14

​Index funds are financial intermediaries, but municipal bonds are not.

Accepted Answer

A) True 
 B)False

Question 15

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Accepted Answer

A)  private saving = $10,000 and GDP = $55,000.
B)  private saving = $10,000 and GDP = $63,000.
C)  private saving = $12,000 and GDP = $67,000.
D)  private saving = $12,000 and GDP = $69,000.E) B) and D)
F) B) and C)

Question 16

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Accepted Answer

demand, ri...

Question 17

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 18

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Accepted Answer

A)  $5 billion and $45 billion
B)  -$5 billion and $45 billion
C)  $5 billion and $50 billion
D)  -$5 billion and $50 billionE) A) and D)
F) A) and B)

Question 19

Which of the following is correct?

Accepted Answer

A)  Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP.
B)  If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11.
C)  In order to use equity finance, a firm must sell about equal values of stocks and bonds.
D)  None of the above is correct.E) C) and D)
F) A) and B)

Question 20

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)  1,500, deficit
B)  1,500, surplus
C)  1,000, deficit
D)  1,000, surplusE) B) and C)
F) All of the above

Exam 26: Saving, Investment, and the Financial System

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Correct AnswerverifiedShow Answer

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Correct AnswerverifiedShow Answer

In a closed economy, what does (T - G) represent?

Correct AnswerverifiedShow Answer

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Correct AnswerverifiedIts price to earnings ratio is...View AnswerShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. What is measured along the vertical axis of the graph?

Correct AnswerverifiedShow Answer

Taking out a mortgage to buy a condo, buying a mutual fund, and building a new factory are all examples of investment.

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Correct AnswerverifiedShow Answer

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Correct AnswerverifiedShow Answer

Mutual funds are a type of financial intermediary.

Correct AnswerverifiedShow Answer

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Correct AnswerverifiedShow Answer

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Correct AnswerverifiedShow Answer

Corporations receive no proceeds from the resale of their stock.

Correct AnswerverifiedShow Answer

By definition, government purchases and taxes are zero for a closed economy.

Correct AnswerverifiedShow Answer

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Correct Answerverifieddemand, ri...View AnswerShow Answer

After 2012 when the U.S. economy recovered,

Correct AnswerverifiedShow Answer

National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.

Correct Answerverifiedprivate saving, publ...View AnswerShow Answer

​Index funds are financial intermediaries, but municipal bonds are not.

Correct AnswerverifiedShow Answer

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Its price to earnings ratio is...
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When tax code changes increase investment incentives, the ___ for loanable funds curve shifts to the _. This results in a(n) _ in the interest rate and a(n) ___ in investment.

Correct Answer
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demand, ri...
View Answer

Correct Answer
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National saving is the sum of ___ and _. In a closed economy it is equal to ___ in equilibrium.

Correct Answer
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private saving, publ...
View Answer

Index funds are financial intermediaries, but municipal bonds are not.

Correct Answer
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