Question 1

Which government policy raises the interest rate and raises investment spending?

Accepted Answer

An investm...

Question 2

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A)   Interest rates would rise.
B)   Interest rates would be unaffected.
C)   Interest rates would fall.
D)   The effect on the interest rate is uncertain.E) None of the above
F) A) and B)

Question 3

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) B) and D)
F) A) and B)

Question 4

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Accepted Answer

A)   "U.S. government bonds generally pay a higher rate of interest than corporate bonds."
B)   "The interest received on corporate bonds is taxable."
C)   "U.S. government bonds have the lowest default risk."
D)   "If you purchase a municipal bond, you can sell it before it matures."E) A) and C)
F) C) and D)

Question 5

The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $2 billion in taxes. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A)   -$2 billion and $1 billion.
B)   $1 billion and $1 billion.
C)   -$1 billion and $3 billion.
D)   -$2 billion and $3 billion.E) A) and B)
F) None of the above

Question 6

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A)   7 percent.
B)   -1 percent.
C)   3 percent.
D)   4 percent.E) All of the above
F) A) and B)

Question 7

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 C)
F) B) and D)

Question 8

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Accepted Answer

A) True 
 B)False

Question 9

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Accepted Answer

A)   and investment both would increase.
B)   and investment both would decrease.
C)   would increase and investment would decrease.
D)   would decrease and investment would increase.E) C) and D)
F) All of the above

Question 10

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Accepted Answer

A)   It would decrease.
B)   It would increase.
C)   It would stay the same.
D)   It might do any of the above.E) A) and B)
F) None of the above

Question 11

Which of the following is not a characteristic of a bond?

Accepted Answer

A)   its tax treatment
B)   its credit risk
C)   its term
D)   its dividend yieldE) None of the above
F) All of the above

Question 12

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 13

If there is surplus of loanable funds, then

Accepted Answer

A)   the supply for loanable funds shifts right and the demand shifts left.
B)   the supply for loanable funds shifts left and the demand shifts right.
C)   neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)   neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.E) A) and C)
F) B) and D)

Question 14

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Accepted Answer

A)   the supply of loanable funds shifts rightward and the interest rate falls.
B)   the supply of loanable funds shifts leftward and the interest rate rises.
C)   the demand for loanable funds shifts leftward and the interest rate falls.
D)   the demand for loanable funds shifts rightward and the interest rate rises.E) B) and C)
F) None of the above

Question 15

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Accepted Answer

A)   only Jim's
B)   only ABC Corporation's
C)   Jim's and ABC Corporation's
D)   neither Jim's nor ABC Corporation'sE) B) and C)
F) B) and D)

Question 16

An increase in the budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 17

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Accepted Answer

A)   in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.
B)   in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving.
C)   markets for government debt are fundamentally different from markets for private debt.
D)   of our assumption that the economy is closed.E) None of the above
F) C) and D)

Question 18

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)   part owners of Huedepool are paid before bondholders get paid anything at all.
B)   part owners of Huedepool are paid after bondholders get paid.
C)   creditors of Huedepool are paid before bondholders get paid anything at all.
D)   creditors of Huedepool are paid after bondholders get paid.E) All of the above
F) A) and B)

Question 19

Which of the following are financial intermediaries?

Accepted Answer

A)   both banks and mutual funds
B)   banks but not mutual funds
C)   mutual funds but not banks
D)   neither banks or mutual fundsE) B) and D)
F) B) and C)

Question 20

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   The supply of and demand for loanable funds would shift right.
B)   The supply of and demand for loanable funds would shift left.
C)   The supply of loanable funds would shift right and the demand for loanable funds would shift left.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Exam 26: Saving, Investment, and the Financial System

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Correct Answer
verified

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Correct Answer
verified

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Correct Answer
verified

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Correct Answer
verified

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Correct Answer
verified

An increase in the budget deficit shifts the demand for loanable funds to the right.

Correct Answer
verified

Which government policy raises the interest rate and raises investment spending?

Correct Answer
verified
An investm...
View Answer

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct Answer
verified

If Huedepool Beer runs into financial difficulty, the stockholders as

Correct Answer
verified

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Correct Answer
verified

Which of the following are financial intermediaries?

Correct Answer
verified

Correct Answer
verified

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Correct Answer
verified

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Correct Answer
verified

Which of the following is not a characteristic of a bond?

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

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

Correct Answer
verified

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Correct Answer
verified

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct Answer
verified

If there is surplus of loanable funds, then

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Correct AnswerverifiedShow Answer

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Correct AnswerverifiedShow Answer

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Correct AnswerverifiedShow Answer

An increase in the budget deficit shifts the demand for loanable funds to the right.

Correct AnswerverifiedShow Answer

Which government policy raises the interest rate and raises investment spending?

Correct AnswerverifiedAn investm...View AnswerShow Answer

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct AnswerverifiedShow Answer

If Huedepool Beer runs into financial difficulty, the stockholders as

Correct AnswerverifiedShow Answer

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Correct AnswerverifiedShow Answer

Which of the following are financial intermediaries?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Correct AnswerverifiedShow Answer

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Correct AnswerverifiedShow Answer

Which of the following is not a characteristic of a bond?

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

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

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

If there is surplus of loanable funds, then

Correct AnswerverifiedShow Answer

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An investm...
View Answer

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