Question 1

We associate the term debt finance with

Accepted Answer

A)   the bond market, and we associate the term equity finance with the stock market.
B)   the stock market, and we associate the term equity finance with the bond market.
C)   financial intermediaries, and we associate the term equity finance with financial markets.
D)   financial markets, and we associate the term equity finance with financial intermediaries.E) A) and D)
F) B) and C)

Question 2

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, which manufactures wooden furniture. He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond.
a. "I have reason to believe that people are soon going to find rocking chairs have health benefits."
b. "I would like to tell people I am part owner of Cedar Valley Furniture."
c. "I do not want to take on much risk."

Accepted Answer

a. Presumably, when this happens, unless...

Question 3

The price of a stock will rise if

Accepted Answer

A)   the managers of a stock exchange decide the price should be higher.
B)   the demand for the stock rises.
C)   the supply of the stock rises.
D)   None of the above are correct.E) C) and D)
F) B) and C)

Question 4

A corporation's earnings are the amount of revenue it receives for the sale of its products

Accepted Answer

A)   minus its cost of production as measured by its accountants. Earnings must be paid out as dividends.
B)   minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation.
C)   minus its direct and indirect costs as measured by its economists. Earnings must be paid out as dividends.
D)   minus its direct and indirect cost as measure by its economists. Earnings may be paid out as dividends or retained by the corporation.E) B) and D)
F) A) and B)

Question 5

In 2013, XYZ Corporation had total earnings of $500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is $70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio?

Accepted Answer

A)   6.25
B)   11.2
C)   14.0
D)   17.5E) A) and B)
F) A) and C)

Question 6

A budget deficit

Accepted Answer

A)   changes the supply of loanable funds.
B)   changes the demand for loanable funds.
C)   changes both the supply of and demand for loanable funds.
D)   does not influence the supply of or the demand for loanable funds.E) None of the above
F) B) and D)

Question 7

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) B) and C)
F) A) and C)

Question 8

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

Accepted Answer

A)   Private and public saving are both positive.
B)   Private saving is positive; public saving is negative.
C)   Private saving is negative; public saving is positive.
D)   Both private saving and public saving are negative.E) A) and B)
F) B) and C)

Question 9

In the small closed economy of San Lorena, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 80 billion denars, government purchases of goods and services were 70 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lorena?

Accepted Answer

A)   270 billion denars, 50 billion denars
B)   250 billion denars, 60 billion denars
C)   260 billion denars, 70 billion denars
D)   None of the above is correct.E) A) and D)
F) A) and C)

Question 10

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

Accepted Answer

A)   Interest rates would rise.
B)   Interest rates would be unaffected.
C)   Interest rates would fall.
D)   The effect on the interest rate is uncertain.E) B) and C)
F) None of the above

Question 11

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Accepted Answer

A)   the quantity of loanable funds traded to increase.
B)   the interest rate to increase.
C)   the quantity of loanable funds traded to decrease.
D)   the interest rate to decrease.E) B) and C)
F) B) and D)

Question 12

A budget surplus

Accepted Answer

A)   occurs when the government has debt equal to zero.
B)   causes government debt to increase.
C)   exists when government spending is greater than tax revenues.
D)   reduces the government's debt.E) A) and B)
F) A) and C)

Question 13

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) None of the above
F) All of the above

Question 14

The slope of the demand for loanable funds curve represents the

Accepted Answer

A)   positive relation between the real interest rate and investment.
B)   negative relation between the real interest rate and investment.
C)   positive relation between the real interest rate and saving.
D)   negative relation between the real interest rate and saving.E) A) and D)
F) A) and C)

Question 15

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

Question 16

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

Accepted Answer

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

Question 17

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Accepted Answer

A)   .5 percent
B)   1.25 percent
C)   4.5 percent
D)   None of the above is correct.E) A) and B)
F) B) and C)

Question 18

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

Accepted Answer

national saving/inve...

Question 19

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Accepted Answer

A)   $1.5 trillion and $2.5 trillion, respectively
B)   $2.5 trillion and $1.5 trillion, respectively
C)   $2.5 trillion and $2.5 trillion, respectively
D)   $1.5 trillion and $1.5 trillion, respectivelyE) None of the above
F) C) and D)

Question 20

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)   there is a surplus so interest rates will rise.
B)   there is a surplus so interest rates will fall.
C)   there is a shortage so interest rates will rise.
D)   there is a shortage so interest rates will fall.E) C) and D)
F) B) and D)

Exam 13: Saving, Investment, and the Financial System

Correct Answer
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We associate the term debt finance with

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

Correct Answer
verified
national saving/inve...
View Answer

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Correct Answer
verified

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
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A budget deficit

Correct Answer
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A budget surplus

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

Correct Answer
verified

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Correct Answer
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The price of a stock will rise if

Correct Answer
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In 2013, XYZ Corporation had total earnings of $500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is $70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio?

Correct Answer
verified

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

Correct Answer
verified

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Correct Answer
verified

A corporation's earnings are the amount of revenue it receives for the sale of its products

Correct Answer
verified

Correct Answer
verified
a. Presumably, when this happens, unless...
View Answer

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

Correct Answer
verified

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Correct Answer
verified

The slope of the demand for loanable funds curve represents the

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

Correct AnswerverifiedShow Answer

We associate the term debt finance with

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 nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Correct AnswerverifiedShow Answer

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

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

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

Correct AnswerverifiedShow Answer

A budget deficit

Correct AnswerverifiedShow Answer

A budget surplus

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Correct AnswerverifiedShow Answer

The price of a stock will rise if

Correct AnswerverifiedShow Answer

In 2013, XYZ Corporation had total earnings of $500 million and XYZ retained 20 percent of its earnings for future investments. If the price of a share of XYZ stock is $70 and if 100 million shares of its stock is outstanding, then what is the price-earnings ratio?

Correct AnswerverifiedShow Answer

You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?

Correct AnswerverifiedShow Answer

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Correct AnswerverifiedShow Answer

A corporation's earnings are the amount of revenue it receives for the sale of its products

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Presumably, when this happens, unless...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Correct AnswerverifiedShow Answer

The slope of the demand for loanable funds curve represents the

Correct AnswerverifiedShow Answer

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national saving/inve...
View Answer

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a. Presumably, when this happens, unless...
View Answer

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