Question 1

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?

Accepted Answer

A)   the supply of loanable funds shifted right.
B)   the supply of loanable funds shifted left.
C)   the demand for loanable funds shifted right.
D)   the demand for loanable funds shifted left.E) C) and D)
F) A) and B)

Question 2

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Accepted Answer

municipal,...

Question 3

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Accepted Answer

A)   a lower interest rate because it has less risk.
B)   a lower interest rate because it has more risk.
C)   a higher interest rate because it has more risk.
D)   the same interest rate, because there is no relationship between term and risk.E) A) and D)
F) A) and C)

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)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) A) and B)
F) None of the above

Question 5

A perpetuity is

Accepted Answer

A)   a financial intermediary that has existed throughout recorded history.
B)   an instrument of equity finance.
C)   a stock that pays dividends forever.
D)   a bond that pays interest forever.E) None of the above
F) A) and D)

Question 6

A does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Accepted Answer

The answer of A does not engage in international trade...

Question 7

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Question 8

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 low­risk bonds."
B)   "Use a medium of exchange."
C)   "Diversify."
D)   "Intermediate."E) A) and D)
F) A) and C)

Question 9

Other things the same, an increase in taxes with no change in government purchases makes national saving

Accepted Answer

A)   rise. The supply of loanable funds shifts right.
B)   rise. The demand for loanable funds shifts right.
C)   fall. The supply of loanable funds shifts left.
D)   fall. The demand for loanable funds shifts left.E) C) and D)
F) A) and B)

Question 10

Compared to stocks, bonds offer the holder

Accepted Answer

A)   lower risk and lower potential return.
B)   lower risk and higher potential return.
C)   higher risk and lower potential return.
D)   higher risk and higher potential return.E) A) and C)
F) All of the above

Question 11

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T...

Question 12

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 13

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)   less likely to expand. This illustrates why the supply of loanable funds slopes downward.
B)   more likely to expand. This illustrates why the supply of loanable funds slopes upward.
C)   less likely to expand. This illustrates why the demand for loanable funds slopes downward.
D)   more likely to expand. This illustrates why the demand for loanable funds slopes upward.E) A) and B)
F) A) and C)

Question 14

Which of the following is a financial intermediary?

Accepted Answer

A)   a mutual fund
B)   the stock market
C)   a U.S. government bond
D)   a wealthy individual who regularly buys and holds large quantities of government bondsE) B) and C)
F) A) and B)

Question 15

In a closed economy, national saving is

Accepted Answer

A)   usually greater than investment.
B)   equal to investment.
C)   usually less than investment because of the leakage of taxes.
D)   always less than investment.E) B) and C)
F) A) and C)

Question 16

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, private saving amounts to

Accepted Answer

A)   $22,000.
B)   $18,000.
C)   $15,000.
D)   $37,000.E) A) and D)
F) All of the above

Question 17

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. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then

Accepted Answer

A)   there is an excess supply of loanable funds at a real interest rate of 6 percent.
B)   there is an excess demand for loanable funds at a real interest rate of 8 percent.
C)   the rate of inflation is approximately 2 percent.
D)   the rate of inflation is approximately 14 percent.E) A) and C)
F) A) and B)

Question 18

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rises.
B)   and quantity of loanable funds falls.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.E) A) and B)
F) A) and C)

Question 19

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)   New York Stock Exchange
B)   American Stock Exchange
C)   Chicago Mercantile Exchange
D)   NASDAQE) C) and D)
F) A) and D)

Question 20

Owners of municipal bonds

Accepted Answer

A)   are not required to pay federal income tax on the interest income.
B)   usually receive a higher interest rate compared to bonds issued by corporations.
C)   usually receive a higher interest rate compared to stock issued by corporations.
D)   pay taxes on the dividends earned from these bonds.E) C) and D)
F) None of the above

Exam 8: Saving, Investment, and the Financial System

What is a bond buyer promised when she buys a bond?

Correct AnswerverifiedShow Answer

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, private saving amounts to

Correct AnswerverifiedShow Answer

In a closed economy, national saving is

Correct AnswerverifiedShow Answer

Other things the same, an increase in taxes with no change in government purchases makes national saving

Correct AnswerverifiedShow Answer

Kathleen is considering expanding her dress shop. If interest rates rise she is

Correct AnswerverifiedShow 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

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

A perpetuity is

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?

Correct AnswerverifiedShow Answer

Owners of municipal bonds

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A does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

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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. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then

Correct AnswerverifiedShow Answer

Which of the following is not an important stock exchange in the United States?

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If the supply of loanable funds shifts to the right, then the equilibrium interest rate

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Compared to stocks, bonds offer the holder

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In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Correct AnswerverifiedInvestment = $100, T...View AnswerShow Answer

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answerverifiedmunicipal,...View AnswerShow Answer

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Correct AnswerverifiedShow Answer

Which of the following is a financial intermediary?

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In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Correct AnswerverifiedShow Answer

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Investment = $100, T...
View Answer

Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answer
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municipal,...
View Answer

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