Question 1

A stock index is

Accepted Answer

A)   an average of a group of stock prices.
B)   an average of a group of stock yields.
C)   a measure of the risk relative to the profitability of corporations.
D)   a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.E) All of the above
F) C) and D)

Question 2

Which of the following is correct?

Accepted Answer

A)   In the national income accounts, investment and private saving refer to the same thing.
B)   In a closed economy if national saving is greater than zero, then everyone must be saving.
C)   The financial system channels funds from savers to borrowers.
D)   People whose consumption exceeds their income are savers.E) B) and C)
F) C) and D)

Question 3

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Accepted Answer

A)   demand funds from the financial system by buying bonds.
B)   demand funds from the financial system by selling bonds.
C)   supply funds to the financial system by buying bonds.
D)   supply funds to the financial system by selling bonds.E) B) and D)
F) A) and D)

Question 4

In national income accounting, we use which of the following pairs of terms interchangeably?

Accepted Answer

A)   "investment" and "private saving"
B)   "investment" and "purchases of stocks and bonds"
C)   "saving" and "national saving"
D)   "public saving" and "government tax revenue minus government spending"E) B) and C)
F) A) and D)

Question 5

In the loanable funds model, an increase in an investment tax credit would create a

Accepted Answer

A)   shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate.
B)   shortage at the former equilibrium interest rate. This shortage would lead to a fall in the interest rate.
C)   surplus at the former equilibrium interest rate. This surplus would lead to a rise in the interest rate.
D)   surplus at the former equilibrium interest rate. This surplus would lead to a fall in the interest rate.E) C) and D)
F) B) and D)

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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) None of the above
F) All of the above

Question 8

When the government's budget deficit increases

Accepted Answer

A)   the government is borrowing less and public savings falls.
B)   the government is borrowing less and public savings increases.
C)   the government is borrowing more and public savings falls.
D)   the government is borrowing more and public savings increases.E) All of the above
F) B) and D)

Question 9

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A)   raise national saving and public saving.
B)   raise national saving and raise public saving.
C)   leave national saving and public saving unchanged.
D)   leave national saving unchanged and raise public saving.E) A) and C)
F) None of the above

Question 11

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

A)   30 major U.S. corporations.
B)   100 major U.S. corporations.
C)   500 representative U.S. corporations.
D)   1,000 representative U.S. corporations.E) A) and D)
F) All of the above

Question 12

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)   creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits.
B)   creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.
C)   part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.
D)   part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.E) All of the above
F) C) and D)

Question 13

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 14

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Accepted Answer

A)   the fund's managers
B)   the fund's shareholders
C)   the federal government
D)   the corporations that originally issued the stocks and/or bonds held by the fundE) A) and D)
F) A) and C)

Question 15

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Accepted Answer

national saving/inve...

Question 16

In a closed economy, what does Y - T - C)  represent?

Accepted Answer

A)   national saving
B)   government tax revenue
C)   public saving
D)   private savingE) A) and B)
F) A) and C)

Question 17

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) A) and D)

Question 18

If Congress increased the tax rate on interest income, investment

Accepted Answer

A)   would increase and saving would decrease.
B)   would decrease and saving would increase.
C)   and saving would increase.
D)   and saving would decrease.E) B) and C)
F) B) and D)

Question 19

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

There is a...

Question 20

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Accepted Answer

A)   2.8 percent.
B)   2.0 percent.
C)   1.6 percent.
D)   0.4 percent.E) None of the above
F) B) and C)

Exam 8: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Correct AnswerverifiedShow Answer

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Correct AnswerverifiedShow Answer

A decrease in taxes on interest income would increase the interest rate.

Correct AnswerverifiedShow Answer

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Correct AnswerverifiedThere is a...View AnswerShow Answer

In a closed economy, what does Y - T - C) represent?

Correct AnswerverifiedShow Answer

When the government's budget deficit increases

Correct AnswerverifiedShow Answer

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Correct Answerverifiednational saving/inve...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the loanable funds model, an increase in an investment tax credit would create a

Correct AnswerverifiedShow Answer

People who buy stock in a corporation such as General Electric become

Correct AnswerverifiedShow Answer

A stock index is

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average is now based on the prices of the stocks of

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Correct AnswerverifiedShow Answer

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Correct AnswerverifiedShow Answer

If Congress increased the tax rate on interest income, investment

Correct AnswerverifiedShow Answer

In national income accounting, we use which of the following pairs of terms interchangeably?

Correct AnswerverifiedShow Answer

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There is a...
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national saving/inve...
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