Question 1

The sale of either stocks or bonds to raise money is known as equity finance.

Accepted Answer

A) True 
 B)False

Question 2

The bond market

Accepted Answer

A)   is a financial market, whereas the stock market is a financial intermediary.
B)   is a financial intermediary, whereas the stock market is a financial market.
C)   is a financial market, as is the stock market.
D)   is a financial intermediary, as is the stock market.E) B) and C)
F) All of the above

Question 3

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Accepted Answer

A)   reduce private saving and public saving.
B)   increase private saving but not public saving.
C)   increase public saving but not private saving.
D)   increase neither private nor public saving.E) None of the above
F) B) and D)

Question 4

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 B)
F) A) and C)

Question 5

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

Accepted Answer

A)   20, which is high compared to historical standards of the market.
B)   20, which is low compared to historical standards of the market.
C)   10, which is low compared to historical standards of the market.
D)   10, which is high compared to historical standards of the market.E) B) and C)
F) A) and D)

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

Question 7

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, investment amounts to

Accepted Answer

A)   $0.4 trillion.
B)   $2.1 trillion.
C)   $1.7 trillion.
D)   $1.2 trillion.E) A) and C)
F) A) and B)

Question 8

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 D)
F) All of the above

Question 9

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 10

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price­earnings ratio?

Accepted Answer

A)   23.1
B)   18.75
C)   15
D)   30E) B) and C)
F) A) and D)

Question 11

The source of the supply of loanable funds is

Accepted Answer

A)   saving, and the source of the demand for loanable funds is investment.
B)   consumption, and the source of the demand for loanable funds is investment.
C)   investment, and the source of the demand for loanable funds is saving.
D)   the interest rate, and the source of the demand for loanable funds is saving.E) A) and D)
F) B) and C)

Question 12

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes.
C)   The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued.
D)   All of the above are correct.E) C) and D)
F) A) and D)

Question 13

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 14

In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?

Accepted Answer

A)   $5
B)   b. $10
C)   c. $80
D)   $100E) A) and B)
F) A) and C)

Question 15

Which advantages)  do mutual funds claim to provide?

Accepted Answer

A)   diversification and access to the skills of professional money managers
B)   diversification but not access to the skills of professional money managers
C)   access to the skills of professional money managers but not diversification
D)   neither diversification nor access to the skills of professional money managers.E) B) and C)
F) All of the above

Question 16

Mandy purchases 68.2 shares of a mutual fund for $1,500. Cassie's purchase of these shares contributes $1,500 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)   C
B)   I
C)   G
D)   None of the above are correct.E) All of the above
F) A) and B)

Question 17

When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Accepted Answer

demand, le...

Question 18

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)   a larger investment tax credit
B)   an expansion of eligibility for Individual Retirement Accounts
C)   an increase in income-tax rates, with no change in the government budget deficit or surplus
D)   an increase in government purchases, with no change in taxesE) B) and C)
F) All of the above

Question 19

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 20

If Congress instituted an investment tax credit

Accepted Answer

A)   it would make buying bonds more desirable, so the demand for loanable funds would shift.
B)   it would make buying capital goods more desirable, so the demand for loanable funds would shift.
C)   it would make buying bonds more desirable, so the supply of loanable funds would shift.
D)   it would make buying capital goods more desirable, so the supply of loanable funds would shift.E) B) and C)
F) All of the above

Exam 18: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, investment amounts to

Correct AnswerverifiedShow Answer

In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?

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Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

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The sale of either stocks or bonds to raise money is known as equity finance.

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The bond market

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Which advantages) do mutual funds claim to provide?

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Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price­earnings ratio?

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Corporations receive no proceeds from the resale of their stock.

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In addition to

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Which of the following statements is correct?

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Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

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

The source of the supply of loanable funds is

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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?

Correct AnswerverifiedShow Answer

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit

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When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Correct Answerverifieddemand, le...View AnswerShow Answer

Mandy purchases 68.2 shares of a mutual fund for $1,500. Cassie's purchase of these shares contributes $1,500 to which magnitude in the identity Y = C + I + G?

Correct AnswerverifiedShow Answer

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct AnswerverifiedShow Answer

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Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's priceearnings ratio?

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When tax code changes reduce investment incentives, the ___ for loanable funds curve shifts to the _. This results in an) _ in the interest rate and an) ___ in investment.

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demand, le...
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