Question 1

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.
r  Q
-Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

Accepted Answer

A)  the quantity of loanable funds
B)  the size of the government budget deficit or surplus
C)  the real interest rate
D)  the nominal interest rateE) A) and B)
F) A) and C)

Question 2

If there is a surplus of loanable funds, then

Accepted Answer

A)  the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
B)  the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
C)  the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
D)  the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.E) A) and D)
F) B) and C)

Question 3

When tax code changes reduce 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, le...

Question 4

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Accepted Answer

A)  the decline in confidence in financial institutions
B)  the credit crunch
C)  the economic downturn
D)  the decline in asset pricesE) B) and D)
F) All of the above

Question 5

Stocks and bonds

Accepted Answer

A)  and checking accounts are all stores of value and commonly function as mediums of exchange.
B)  and checking accounts are all stores of value, but only stocks and bonds commonly function as mediums of exchange.
C)  and checking accounts are all stores of value, but only checking accounts commonly function as mediums of exchange.
D)  and checking accounts all commonly function as mediums of exchange, but only stocks and bonds are a store of value.E) A) and C)
F) A) and D)

Question 6

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

Accepted Answer

A)  will make investment rise.
B)  will make the rate of interest rise.
C)  will make public saving rise.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 7

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A)  The government goes from a surplus to a deficit.
B)  The government repeals an investment tax credit.
C)  The government replaces a consumption tax with an income tax.
D)  None of the above is correct.E) C) and D)
F) A) and D)

Question 8

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Accepted Answer

A)  is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
B)  is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.
C)  is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
D)  is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.E) B) and C)
F) A) and D)

Question 9

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) All of the above
F) A) and C)

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) B) and C)
F) A) and C)

Question 11

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Accepted Answer

A)  50, which is high by historical standards.
B)  50, which is low by historical standards.
C)  25, which is high by historical standards.
D)  25, which is low by historical standards.E) A) and B)
F) None of the above

Question 12

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 13

Other things being constant, when a firm sells new shares of stock, the

Accepted Answer

A)  supply of the stock increases and the price decreases.
B)  supply of the stock decreases and the price increases.
C)  demand for the stock increases and the price increases.
D)  demand for the stock decreases and the price decreases.E) C) and D)
F) None of the above

Question 14

Use the following table to answer the following questions.
Table 26-1 
-Refer to Table 26-1. In dollar terms, which company paid the highest dividend per share?

Accepted Answer

A)  GenMills
B)  Microsoft
C)  Graco
D)  HersheyE) None of the above
F) A) and D)

Question 15

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Accepted Answer

A)  1,500 and -500, respectively
B)  1,500 and 500, respectively
C)  1,000 and -500, respectively
D)  1,000 and 500, respectivelyE) B) and D)
F) All of the above

Question 16

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) A) and B)

Question 17

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Accepted Answer

A)  the market for loanable funds is in equilibrium.
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise.
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.E) A) and C)
F) A) and B)

Question 18

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

Accepted Answer

A)  capital investment.
B)  investment in human capital.
C)  business consumption expenditures.
D)  personal saving.E) B) and D)
F) All of the above

Question 19

Profits not paid out to stockholders are

Accepted Answer

A)  retained earnings.
B)  known as dividends.
C)  the denominator in the price-earnings ratio.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 20

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

Interest rates fall and investment falls. Which of the following could explain these changes?

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When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

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If there is a surplus of loanable funds, then

Correct AnswerverifiedShow Answer

A bond that never matures is known as a

Correct AnswerverifiedShow Answer

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. r Q -Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

Correct AnswerverifiedShow Answer

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Correct AnswerverifiedShow Answer

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Correct AnswerverifiedShow Answer

Other things being constant, when a firm sells new shares of stock, the

Correct AnswerverifiedShow Answer

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Correct AnswerverifiedShow Answer

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. In dollar terms, which company paid the highest dividend per share?

Correct AnswerverifiedShow Answer

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

Correct AnswerverifiedShow Answer

Stocks and bonds

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When tax code changes reduce 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, le...View AnswerShow 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

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Correct AnswerverifiedShow Answer

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Correct AnswerverifiedShow Answer

Profits not paid out to stockholders are

Correct AnswerverifiedShow Answer

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When tax code changes reduce 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, le...
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