Question 1

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)   this year and last year
B)   this year but not last year
C)   last year but not this year
D)   neither this year nor last yearE) A) and D)
F) A) and C)

Question 2

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Accepted Answer

A)   8 percent.
B)   2 percent.
C)   3 percent.
D)   5 percent.E) A) and B)
F) A) and C)

Question 3

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Accepted Answer

A)   not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money.
B)   not influence the decision to build the factory because its stockholders are expecting a new factory.
C)   make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable.
D)   make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.E) A) and D)
F) A) and C)

Question 4

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Accepted Answer

A)   $2.
B)   $3.
C)   $5.
D)   $8.E) All of the above
F) A) and B)

Question 5

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Accepted Answer

A)   the inflation rate.
B)   gross domestic product.
C)   the real interest rate.
D)   the nominal interest rate.E) A) and D)
F) A) and C)

Question 6

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)   raise both private and public saving.
B)   raise private saving and lower public saving.
C)   lower private saving and raise public saving.
D)   lower private and public saving.E) None of the above
F) All of the above

Question 7

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) C) and D)
F) B) and C)

Question 8

Other things the same, an increase in the budget deficit

Accepted Answer

A)   shifts the demand for loanable funds right, so the interest rate rises.
B)   shifts the demand for loanable funds left, so the interest rate falls.
C)   shifts the supply of loanable funds right, so the interest rate falls.
D)   shifts the supply of loanable funds left, so the interest rate rises.E) B) and C)
F) A) and C)

Question 9

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes.
C)   The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 10

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following involves financial intermediation?

Accepted Answer

A)   a bank makes a loan
B)   a household buys stock issued by a corporation
C)   a foreign government purchases U.S. government bonds
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 12

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 13

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Accepted Answer

A)   the demand for this company's stock to decrease, so the price would rise.
B)   the demand for this company's stock to decrease, so the price would fall.
C)   the supply of this company's stock to decrease, so the price would fall.
D)   the supply of this company's stock to decrease, so the price would rise.E) A) and C)
F) B) and D)

Question 15

If Canada goes from a large budget deficit to a small budget deficit, it will

Accepted Answer

A)   increase private saving and so shift the supply of loanable funds right.
B)   increase investment and so shift the demand for loanable funds right.
C)   increase public saving and so shift the supply of loanable funds right.
D)   reduce national saving and shift the supply left.E) A) and B)
F) A) and C)

Question 16

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Accepted Answer

A)   the equilibrium interest rate falls
B)   the equilibrium interest rate rises
C)   the equilibrium quantity of loanable funds rises
D)   the equilibrium quantity of loanable funds fallsE) B) and C)
F) A) and D)

Question 17

Borrowers can and sometimes do)  default on their loans when

Accepted Answer

A)   the dividend yield on their shares of stock reaches zero.
B)   they convert their bonds into perpetuities.
C)   they declare bankruptcy.
D)   they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.E) A) and B)
F) A) and C)

Question 18

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 19

Given that Monika's income exceeds her expenditures, Monika is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) C) and D)
F) A) and B)

Question 20

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Correct Answer
verified

If Canada goes from a large budget deficit to a small budget deficit, it will

Correct Answer
verified

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Correct Answer
verified

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

Correct Answer
verified

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct Answer
verified

In a closed economy, investment must be equal to private saving.

Correct Answer
verified

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct Answer
verified

Other things the same, an increase in the budget deficit

Correct Answer
verified

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Correct Answer
verified

Which of the following involves financial intermediation?

Correct Answer
verified

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Correct Answer
verified

Borrowers can and sometimes do) default on their loans when

Correct Answer
verified

Mutual funds are a type of financial intermediary.

Correct Answer
verified

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Correct Answer
verified

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct Answer
verified

Correct Answer
verified

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Correct Answer
verified

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct Answer
verified

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Correct AnswerverifiedShow Answer

If Canada goes from a large budget deficit to a small budget deficit, it will

Correct AnswerverifiedShow Answer

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

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

According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct AnswerverifiedShow Answer

In a closed economy, investment must be equal to private saving.

Correct AnswerverifiedShow Answer

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct AnswerverifiedShow Answer

Other things the same, an increase in the budget deficit

Correct AnswerverifiedShow Answer

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Correct AnswerverifiedShow Answer

Which of the following involves financial intermediation?

Correct AnswerverifiedShow Answer

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Correct AnswerverifiedShow Answer

Borrowers can and sometimes do) default on their loans when

Correct AnswerverifiedShow Answer

Mutual funds are a type of financial intermediary.

Correct AnswerverifiedShow Answer

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Correct AnswerverifiedShow Answer

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Correct AnswerverifiedShow Answer

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct AnswerverifiedShow Answer

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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