Question 1

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A)  $5 billion
B)  $4 billion
C)  $3 billion
D)  $11 billionE) A) and B)
F) A) and C)

Question 2

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

Accepted Answer

The answer of A higher interest rate makes _____ more...

Question 3

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes reduce saving incentives,...

Question 4

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 loanable funds would shift rightward and investment would increase.
B)  The supply of loanable funds would shift leftward and investment would decrease.
C)  The demand for loanable funds would shift rightward and investment would increase.
D)  The demand for loanable funds would shift leftward and investment would decrease.E) A) and B)
F) A) and C)

Question 5

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 private and national saving?

Accepted Answer

A)  private and national saving would rise
B)  private and national saving would fall
C)  private saving would rise and national saving would fall
D)  private saving would fall and national saving would riseE) B) and C)
F) None of the above

Question 6

In addition to

Accepted Answer

A)  performing financial intermediation, banks are important in that they help create a medium of exchange.
B)  serving as financial markets, mutual funds are important in that they help create a store of value.
C)  serving as stores of value, stocks and bonds also serve as media of exchange.
D)  All of the above are correct.E) B) and D)
F) A) and C)

Question 7

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from  to 
?

Accepted Answer

A)  The tax code is reformed to encourage greater saving.
B)  The tax code is reformed to encourage greater investment.
C)  The government starts running a budget deficit.
D)  The government starts running a budget surplus.E) All of the above
F) B) and C)

Question 8

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 9

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Accepted Answer

A)  the demand for loanable funds shifts rightward.
B)  the demand for loanable funds shifts leftward.
C)  the supply of loanable funds shifts rightward.
D)  the supply of loanable funds shifts leftward.E) A) and B)
F) All of the above

Question 10

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 11

Which of the following bonds has the highest interest rate?

Accepted Answer

A)  a high credit risk and a short term.
B)  a low credit risk and a short term.
C)  a long term and a high credit risk.
D)  a long term and a low credit risk.E) A) and B)
F) A) and C)

Question 12

If there is a surplus of loanable funds, then

Accepted Answer

A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise.
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall.
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise.
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall.E) A) and B)
F) None of the above

Question 13

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

Question 14

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Accepted Answer

A)  $2.05.
B)  $5.00.
C)  $80.00
D)  $50.00.E) A) and C)
F) A) and B)

Question 15

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Accepted Answer

A)  lower interest rates and investment in 2011 than in 2010.
B)  lower interest rates and greater investment in 2011 than in 2010.
C)  higher interest rates and greater investment in 2011 than in 2010.
D)  higher interest rates and lower investment in 2011 than in 2010.E) B) and D)
F) None of the above

Question 16

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A)  The government runs a larger deficit.
B)  The government institutes an investment tax credit.
C)  The government replaces the income tax with a consumption tax.
D)  None of the above is correct.E) A) and B)
F) B) and D)

Question 17

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

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

Question 18

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A)  each share represents 1 percent of the firm's indebtedness.
B)  each share represents ownership of 1 percent of the firm.
C)  the firm is engaging in term finance.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 19

What is the main function of the financial system?

Accepted Answer

Matching s...

Question 20

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy...

Exam 26: Saving, Investment, and the Financial System

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Correct Answer
verified

If there is a surplus of loanable funds, then

Correct Answer
verified

If a firm sells a total of 100 shares of stock, then

Correct Answer
verified

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

Correct Answer
verified

What is the main function of the financial system?

Correct Answer
verified
Matching s...
View Answer

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

Correct Answer
verified

Correct Answer
verified

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Correct Answer
verified

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

Correct Answer
verified

When tax code changes reduce saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Correct Answer
verified

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 private and national saving?

Correct Answer
verified

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

The nominal interest rate is the

Correct Answer
verified

Which of the following bonds has the highest interest rate?

Correct Answer
verified

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Correct Answer
verified

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct Answer
verified
As shown in the graph below, the economy...
View Answer

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Correct Answer
verified

Which of the following events could explain an increase in interest rates together with an increase in investment?

Correct Answer
verified

In addition to

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, then

Correct AnswerverifiedShow Answer

If a firm sells a total of 100 shares of stock, then

Correct AnswerverifiedShow Answer

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

Correct AnswerverifiedShow Answer

What is the main function of the financial system?

Correct AnswerverifiedMatching s...View AnswerShow 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

Correct AnswerverifiedShow Answer

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Correct AnswerverifiedShow Answer

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

Correct AnswerverifiedShow Answer

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Correct AnswerverifiedShow Answer

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Correct AnswerverifiedShow 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 private and national saving?

Correct AnswerverifiedShow Answer

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

The nominal interest rate is the

Correct AnswerverifiedShow Answer

Which of the following bonds has the highest interest rate?

Correct AnswerverifiedShow Answer

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Correct AnswerverifiedShow Answer

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below, the economy...View AnswerShow Answer

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Correct AnswerverifiedShow Answer

Which of the following events could explain an increase in interest rates together with an increase in investment?

Correct AnswerverifiedShow Answer

In addition to

Correct AnswerverifiedShow Answer

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Correct Answer
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Matching s...
View Answer

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Correct Answer
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Correct Answer
verified

When tax code changes reduce saving incentives, the interest rate will _ and investment will _.

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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As shown in the graph below, the economy...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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