Question 1

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Question 2

A bond that never matures is known as a

Accepted Answer

A)   perpetuity.
B)   an intermediary bond.
C)   an indexed bond.
D)   a junk bond.E) B) and C)
F) C) and D)

Question 3

Compared to short-term bonds,other things the same,long-term bonds generally have

Accepted Answer

A)   more risk and so they pay higher interest rates.
B)   less risk and so they pay lower interest rates.
C)   less risk and so they pay higher interest rates.
D)   about the same risk and so they pay about the same interest rate.E) A) and B)
F) None of the above

Question 4

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 5

Figure 13-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 1 to D2 is called A)  an increase in the demand for loanable funds,and that increase would originate from people who had some extra income they wanted to lend. B)  an increase in the demand for loanable funds,and that increase would originate from households and firms who wish to borrow to make investments. C)  a decrease in the demand for loanable funds,and that decrease would originate from people who had some extra income they wanted to lend. D)  a decrease in the demand for loanable funds,and that decrease would originate from households and firms who wish to borrow to make investments." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-3.A shift of the demand curve from D1 to D2 is called

Accepted Answer

A)   an increase in the demand for loanable funds,and that increase would originate from people who had some extra income they wanted to lend.
B)   an increase in the demand for loanable funds,and that increase would originate from households and firms who wish to borrow to make investments.
C)   a decrease in the demand for loanable funds,and that decrease would originate from people who had some extra income they wanted to lend.
D)   a decrease in the demand for loanable funds,and that decrease would originate from households and firms who wish to borrow to make investments.E) B) and C)
F) A) and D)

Question 6

The old adage,"Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A)   "Buy low-risk bonds."
B)   "Use a medium of exchange."
C)   "Diversify."
D)   "Intermediate."E) None of the above
F) C) and D)

Question 7

Historically,the typical price-earnings ratio for stocks is about

Accepted Answer

A)   3
B)   8
C)   15
D)   26E) None of the above
F) All of the above

Question 8

Ethan purchases a new house for $170,000.Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)   C
B)   I
C)   G
D)   None of the above are correct.E) None of the above
F) B) and C)

Question 9

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 10

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)   there is a surplus so interest rates will rise.
B)   there is a surplus so interest rates will fall.
C)   there is a shortage so interest rates will rise.
D)   there is a shortage so interest rates will fall.E) B) and C)
F) B) and D)

Question 11

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) None of the above
F) B) and C)

Question 12

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

Accepted Answer

An investm...

Question 13

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

Accepted Answer

A)   The economy has no government.
B)   The economy's government is running a budget deficit.
C)   The economy's government is running a budget surplus.
D)   No restriction is necessary;investment and private saving are equal for all closed economies.E) B) and C)
F) A) and D)

Question 14

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 15

Compared to bondholders,stockholders

Accepted Answer

A)   face higher risk and have the potential for higher returns.
B)   face higher risk but receive a fixed payment.
C)   face lower risk and have the potential for higher returns.
D)   face lower risk but receive a fixed payment.E) None of the above
F) A) and C)

Question 16

For an imaginary closed economy,T = $5,000;S = $11,000;C = $50,000;and the government is running a budget deficit of $1,000.Then

Accepted Answer

A)   private saving = $10,000 and GDP = $54,000.
B)   private saving = $10,000 and GDP = $58,000.
C)   private saving = $12,000 and GDP = $67,000.
D)   private saving = $12,000 and GDP = $72,000.E) None of the above
F) B) and C)

Question 17

Suppose the market for loanable funds is in equilibrium.Given the numbers below,determine the quantity of loanable funds demanded. GDP
$200 billion
Consumption
$130 billion
Taxes Net of Transfers
$30 billion
Government Spending
$40 billion

Accepted Answer

A)   $30 billion
B)   $25 billion
C)   $20 billion
D)   $15 billionE) All of the above
F) A) and C)

Question 18

Which of the following lists correctly identifies the four expenditure categories of GDP?

Accepted Answer

A)   consumption,government purchases,investment,net-exports
B)   consumption,investment,depreciation,net-exports
C)   consumption,saving,investment,depreciation,
D)   consumption,government purchases,investment,savingsE) B) and C)
F) C) and D)

Question 19

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

Accepted Answer

A)   national saving would fall and private saving would rise
B)   national saving would rise and private saving would fall
C)   both national saving and private saving would fall
D)   None of the above is correct.E) B) and D)
F) A) and B)

Question 20

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

Exam 26: Saving,investment,and the Financial System

Suppose the market for loanable funds is in equilibrium.Given the numbers below,determine the quantity of loanable funds demanded. GDP $200 billion Consumption $130 billion Taxes Net of Transfers $30 billion Government Spending $40 billion

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The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

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Which of the following statements is correct?

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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.

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Compared to short-term bonds,other things the same,long-term bonds generally have

Correct AnswerverifiedShow Answer

A bond that never matures is known as a

Correct AnswerverifiedShow Answer

Historically,the typical price-earnings ratio for stocks is about

Correct AnswerverifiedShow Answer

Which of the following lists correctly identifies the four expenditure categories of GDP?

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

Figure 13-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3.A shift of the demand curve from D1 to D2 is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedAn investm...View AnswerShow Answer

The old adage,"Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Correct AnswerverifiedShow Answer

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

Correct AnswerverifiedShow Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

Compared to bondholders,stockholders

Correct AnswerverifiedShow Answer

Ethan purchases a new house for $170,000.Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct AnswerverifiedShow Answer

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For an imaginary closed economy,T = $5,000;S = $11,000;C = $50,000;and the government is running a budget deficit of $1,000.Then

Correct AnswerverifiedShow Answer

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

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Figure 13-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3.A shift of the demand curve from D₁ to D₂ is called

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An investm...
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The claim that an increase in the intere...
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Market for...
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