Question 1

Two of the economy's most important financial intermediaries are

Accepted Answer

A)   suppliers of funds and demanders of funds.
B)   banks and the bond market.
C)   the stock market and the bond market.
D)   banks and mutual funds.E) B) and D)
F) B) and C)

Question 2

The economy's two most important financial markets are

Accepted Answer

A)   the investment market and the saving market.
B)   the bond market and the stock market.
C)   banks and the stock market.
D)   financial markets and financial institutions.E) B) and C)
F) C) and D)

Question 3

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

Accepted Answer

A)   3.5 percent.
B)   5 percent.
C)   9 percent
D)   7 percent.E) B) and D)
F) All of the above

Question 4

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)   crowding out would not be a consequence of an increase in the budget deficit.
B)   higher interest rates would not be a consequence of an increase in the budget deficit.
C)   an increase in the budget deficit would cause the demand for loanable funds to decrease.
D)   we would be making only a semantic change in how we analyze the effects of government budget deficits.E) A) and B)
F) C) and D)

Question 5

How do banks make profits?

Accepted Answer

They charge borrower...

Question 6

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)   Fran and Miller are both investing.
B)   Fran and Miller are both saving.
C)   Fran is investing; Miller is saving.
D)   Fran is saving; Miller is investing.E) A) and B)
F) C) and D)

Question 7

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

Accepted Answer

A)   There would be no change in the interest rate or saving.
B)   The interest rate would decrease and saving would increase.
C)   The interest rate would increase and saving would decrease.
D)   None of the above is correct.E) A) and C)
F) All of the above

Question 8

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

Accepted Answer

A)   The supply of loanable funds would shift right.
B)   The demand for loanable funds would shift right.
C)   The supply of loanable funds would shift left.
D)   The demand for loanable funds would shift left.E) None of the above
F) B) and C)

Question 9

Net exports must equal zero for any economy

Accepted Answer

A)   that is closed.
B)   for which Y = C + I + G.
C)   for which S = Y - C - G.
D)   All of the above are correct.E) A) and D)
F) None of the above

Question 10

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A)   S = I - G
B)   I = Y - C + G
C)   Y = C + I + G
D)   Y = C + I + G + NXE) C) and D)
F) B) and D)

Question 11

When the government has a budget surplus

Accepted Answer

A)   it buys more of its bonds from the public than it sells to the public.
B)   it spends more than it receives in tax revenue.
C)   private saving is greater than zero.
D)   exports are greater than imports.E) B) and C)
F) A) and D)

Question 12

National saving

Accepted Answer

A)   is the total income in the economy that remains after paying for consumption.
B)   is the total income in the economy that remains after paying for consumption and government purchases.
C)   is always greater than investment for a closed economy.
D)   is equal to private saving minus public saving.E) A) and C)
F) B) and C)

Question 13

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) None of the above
F) A) and B)

Question 14

Which of the following would shift the demand for loanable funds to the right?

Accepted Answer

A)   income tax increases
B)   government expenditures increase
C)   the interest rate falls
D)   Congress and the president pass an investment tax creditE) C) and D)
F) A) and B)

Question 15

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Accepted Answer

A)   rise.
B)   fall.
C)   be unchanged.
D)   move in an uncertain direction.E) A) and C)
F) B) and D)

Question 16

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Accepted Answer

Private saving is $550 billion...

Question 17

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

Question 18

A creditor of a corporation holds

Accepted Answer

A)   bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
B)   bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.
C)   stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
D)   stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.E) None of the above
F) All of the above

Question 19

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Accepted Answer

A) True 
 B)False

Question 20

The assumption of a closed economy

Accepted Answer

A)   applies to the world economy.
B)   applies to most national economies.
C)   requires us to assume that the government's budget is always balanced.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Exam 8: Saving, Investment, and the Financial System

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

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In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Correct AnswerverifiedPrivate saving is $550 billion...View AnswerShow Answer

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

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When the government has a budget surplus

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National saving

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

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

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Which of the following equations will always represent GDP in an open economy?

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

Correct AnswerverifiedShow Answer

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Correct AnswerverifiedShow Answer

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

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If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

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Two of the economy's most important financial intermediaries are

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The assumption of a closed economy

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The economy's two most important financial markets are

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Net exports must equal zero for any economy

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Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

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A creditor of a corporation holds

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How do banks make profits?

Correct AnswerverifiedThey charge borrower...View AnswerShow Answer

Which of the following would shift the demand for loanable funds to the right?

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Private saving is $550 billion...
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They charge borrower...
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