Question 1

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Accepted Answer

A)   corporate bond, municipal bond, U.S. government bond
B)   corporate bond, U.S. government bond, municipal bond
C)   municipal bond, U.S. government bond, corporate bond
D)   U.S. government bond, municipal bond, corporate bondE) None of the above
F) All of the above

Question 2

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)   -500
B)   500
C)   2,000
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 3

Use the following table to answer the following questions.
Table 26-2
 
-Refer to Table 26-2. Which company had the highest earnings per share?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   Kraft
D)   Kellogg Co.E) B) and C)
F) C) and D)

Question 4

Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150.
-Refer to Scenario 26-3. This economy's government is running a

Accepted Answer

A)   budget deficit of $75.
B)   budget deficit of $80.
C)   budget deficit of $50.
D)   budget deficit of $100.E) B) and C)
F) A) and B)

Question 5

Which of the following statements is correct?

Accepted Answer

A)   The total income in the economy that remains after paying for consumption and government purchases is called private saving.
B)   The sum of private saving and national saving is called public saving.
C)   For a closed economy, the sum of private saving and public saving must equal investment.
D)   For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.E) None of the above
F) A) and B)

Question 6

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)   Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
B)   Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
C)   Bond A has a term of 20 years and Bond B has a term of 1 year.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 7

Financial intermediaries are

Accepted Answer

A)   the same as financial markets.
B)   individuals who make profits by buying a stock low and selling it high.
C)   a more general name for financial assets such as stocks, bonds, and checking accounts.
D)   financial institutions through which savers can indirectly provide funds to borrowers.E) A) and C)
F) B) and C)

Question 8

A high price-earnings ratio for a stock indicates that either the stock is

Accepted Answer

A)   undervalued or people are relatively optimistic about the corporation's prospects.
B)   overvalued or people are relatively optimistic about the corporation's prospects.
C)   overvalued or people are relatively pessimistic about the corporation's prospects.
D)   undervalued or people are relatively pessimistic about the corporation's prospects.E) A) and C)
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

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 11

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Accepted Answer

A)   The 2 percent bond is more risky than the 5 percent bond.
B)   The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond.
C)   The 2 percent bond has a longer term than the 5 percent bond.
D)   The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.E) C) and D)
F) B) and C)

Question 12

In which case would people desire to borrow the most?

Accepted Answer

A)   the nominal interest rate is 8% and the inflation rate is 7%
B)   the nominal interest rate is 7% and the inflation rate is 5%
C)   the nominal interest rate is 6% and the inflation rate is 3%
D)   the nominal interest rate is 5% and the inflation rate is 1%E) All of the above
F) B) and C)

Question 13

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Accepted Answer

A)   raise the demand for existing shares of the stock, causing the price to rise.
B)   decrease the demand for existing shares of the stock, causing the price to fall.
C)   raise the supply of the existing shares of stock, causing the price to rise.
D)   raise the supply of the existing shares of stock, causing the price to fall.E) A) and C)
F) A) and B)

Question 14

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 15

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Accepted Answer

A)   demand the required funds by buying bonds.
B)   demand the required funds by selling bonds.
C)   supply the required funds by buying bonds.
D)   supply the required funds by selling bonds.E) None of the above
F) B) and C)

Question 16

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

Question 17

What is a mutual fund?

Accepted Answer

An institution that sells shar...

Question 18

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

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

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Correct AnswerverifiedShow Answer

A national chain of grocery stores wants to finance the construction of several new stores. The firm has limited internal funds, so it likely will

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. This economy's government is running a

Correct AnswerverifiedShow Answer

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Correct AnswerverifiedShow Answer

In which case would people desire to borrow the most?

Correct AnswerverifiedShow Answer

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Correct AnswerverifiedShow Answer

What is a mutual fund?

Correct AnswerverifiedAn institution that sells shar...View AnswerShow Answer

A high price-earnings ratio for a stock indicates that either the stock is

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Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the highest earnings per share?

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Financial intermediaries are

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Corporations receive no proceeds from the resale of their stock.

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Most entrepreneurs finance their purchases of real capital using their past saving.

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Correct AnswerverifiedShow Answer

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct AnswerverifiedShow Answer

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An institution that sells shar...
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