Question 1

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 B)
F) A) and C)

Question 2

On which of these bonds is the prospect of default most likely?

Accepted Answer

A)   a junk bond
B)   a municipal bond
C)   a U.S. government bond
D)   a corporate bond issued by Proctor & Gamble CorporationE) A) and C)
F) B) and C)

Question 3

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is $45 million - ...

Question 4

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)   the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.
B)   the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.
C)   both the demand for and supply of loanable funds are more elastic.
D)   both the demand for and supply of loanable funds are more inelastic.E) B) and C)
F) All of the above

Question 5

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Accepted Answer

A)   $15
B)   $30
C)   $45
D)   $60.E) C) and D)
F) B) and C)

Question 6

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Accepted Answer

A)   borrowing directly.
B)   borrowing indirectly.
C)   lending directly.
D)   lending indirectly.E) A) and D)
F) B) and C)

Question 7

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)   the government buys goods from another country
B)   someone buys stock in an American company
C)   a firm increases its capital stock
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 8

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Accepted Answer

A)   public and national saving would rise
B)   public and national saving would fall
C)   public saving would rise and national saving would fall
D)   public saving would fall and national saving would riseE) C) and D)
F) A) and D)

Question 9

The nominal interest rate is the

Accepted Answer

A)   interest rate corrected for inflation.
B)   interest rate as usually reported by banks.
C)   real rate of return to the lender.
D)   real cost of borrowing to the borrower.E) A) and B)
F) B) and D)

Question 10

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Accepted Answer

A)   $3 trillion
B)   $9 trillion
C)   $11 trillion
D)   $17 trillionE) None of the above
F) A) and B)

Question 11

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Accepted Answer

A)   the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
B)   the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
C)   the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
D)   the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.E) A) and B)
F) A) and C)

Question 12

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, private saving is equal to

Accepted Answer

A)   $0.3 trillion.
B)   $1.2 trillion.
C)   $1.0 trillion.
D)   $1.7 trillion.E) None of the above
F) A) and D)

Question 13

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Accepted Answer

A)   .5 percent
B)   1.25 percent
C)   4.5 percent
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 14

Which of the following is an example of financial intermediation?

Accepted Answer

A)   John buys shares of stock issued by a fast food company.
B)   A foreign government buys bonds issued by the U.S. Treasury.
C)   Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 15

When someone borrows to purchase capital goods, he is using someone else's to fund his .

Accepted Answer

The answer of When someone borrows to purchase capital goods,...

Question 16

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease, ...

Question 18

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Accepted Answer

A)   C = $8 trillion, G = $3 trillion
B)   C = $13 trillion, G = -$1 trillion
C)   C = $9 trillion, G = $5 trillion
D)   C = $7 trillion, G = $1 trillionE) None of the above
F) C) and D)

Question 19

When the government increases spending holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Accepted Answer

falls, inc...

Question 20

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Exam 8: Saving, Investment, and the Financial System

Correct Answer
verified
The earnings per share is $45 million - ...
View Answer

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

Correct Answer
verified
decrease, ...
View Answer

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Correct Answer
verified

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Correct Answer
verified

When the government increases spending holding taxes constant), the budget balance ___. This causes the interest rate in the market for loanable funds to _ and investment to ___.

Correct Answer
verified
falls, inc...
View Answer

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Correct Answer
verified

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Correct Answer
verified

Which of the following would be included as investment in the GDP accounts?

Correct Answer
verified

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 Answer
verified

Which of the following is an example of financial intermediation?

Correct Answer
verified

On which of these bonds is the prospect of default most likely?

Correct Answer
verified

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct Answer
verified

The nominal interest rate is the

Correct Answer
verified

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

Correct Answer
verified

When someone borrows to purchase capital goods, he is using someone else's to fund his .

Correct Answer
verified

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct Answer
verified

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Correct Answer
verified

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct Answer
verified

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Correct Answer
verified

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Correct AnswerverifiedThe earnings per share is $45 million - ...View AnswerShow Answer

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Correct Answerverifieddecrease, ...View AnswerShow Answer

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Correct AnswerverifiedShow Answer

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Correct AnswerverifiedShow Answer

When the government increases spending holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Correct Answerverifiedfalls, inc...View AnswerShow Answer

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Correct AnswerverifiedShow Answer

Which of the following would be included as investment in the GDP accounts?

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

Which of the following is an example of financial intermediation?

Correct AnswerverifiedShow Answer

On which of these bonds is the prospect of default most likely?

Correct AnswerverifiedShow Answer

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct AnswerverifiedShow Answer

The nominal interest rate is the

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

Correct AnswerverifiedShow Answer

When someone borrows to purchase capital goods, he is using someone else's to fund his .

Correct AnswerverifiedShow Answer

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct AnswerverifiedShow Answer

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Correct AnswerverifiedShow Answer

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct AnswerverifiedShow Answer

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Correct AnswerverifiedShow Answer

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct AnswerverifiedShow Answer

Correct Answer
verified
The earnings per share is $45 million - ...
View Answer

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

Correct Answer
verified
decrease, ...
View Answer

Correct Answer
verified

Correct Answer
verified

When the government increases spending holding taxes constant), the budget balance ___. This causes the interest rate in the market for loanable funds to _ and investment to ___.

Correct Answer
verified
falls, inc...
View Answer

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verified

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