Question 1

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 2

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)   the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.
B)   the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.
C)   both the demand for and supply of loanable funds are more elastic.
D)   both the demand for and supply of loanable funds are more inelastic.E) B) and C)
F) A) and B)

Question 3

Which of the following is an example of financial intermediation?

Accepted Answer

A)   John buys shares of stock issued by a fast food company.
B)   A foreign government buys bonds issued by the U.S. Treasury.
C)   Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
D)   None of the above is correct.E) C) and D)
F) A) and B)

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

Question 5

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 6

Index funds

Accepted Answer

A)   typically have a higher rate of return and higher costs than managed mutual funds.
B)   typically have a higher rate of return and lower costs than managed mutual funds.
C)   typically have a lower rate of return and higher costs than managed mutual funds.
D)   typically have a lower rate of return and lower costs than managed mutual funds.E) All of the above
F) None of the above

Question 7

Managed funds

Accepted Answer

A)   typically have a higher rate of return and higher costs than index funds.
B)   typically have a higher rate of return and lower costs than index funds.
C)   typically have a lower rate of return and higher costs than index funds.
D)   typically have a lower rate of return and lower costs than index funds.E) B) and C)
F) A) and D)

Question 8

If the government currently has a budget deficit, then

Accepted Answer

A)   it does not necessarily have a debt.
B)   its debt is increasing.
C)   government expenditures are greater than taxes.
D)   All of the above are correct.E) All of the above
F) A) and C)

Question 9

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

Question 10

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, public saving is equal to

Accepted Answer

A)   $0.2 trillion and the government is running a budget surplus of $0.2 trillion.
B)   $0.2 trillion and the government is running a budget deficit of $0.2 trillion.
C)   -$0.2 trillion and the government is running a budget deficit of $0.2 trillion.
D)   -$0.2 trillion and the government is running a budget surplus of $0.2 trillion.E) B) and D)
F) None of the above

Question 11

A corporation's earnings are

Accepted Answer

A)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.
B)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
C)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
D)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.E) B) and D)
F) All of the above

Question 12

A decrease in the budget deficit

Accepted Answer

A)   makes investment spending fall.
B)   makes investment spending rise.
C)   does not affect investment spending.
D)   may increase, decrease, or not affect investment spending if private saving doesn't change.E) All of the above
F) C) and D)

Question 13

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) None of the above
F) All of the above

Question 14

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A)   invest in physical capital.
B)   use equity finance.
C)   sell bonds.
D)   purchase bonds.E) None of the above
F) A) and B)

Question 15

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Accepted Answer

A)   systems.
B)   markets.
C)   institutions.
D)   intermediaries.E) A) and B)
F) All of the above

Question 16

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

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

Question 19

Which of the following numbers is not associated with shares of a company's stock?

Accepted Answer

A)   term
B)   dividend
C)   price
D)   price-earnings ratioE) All of the above
F) C) and D)

Question 20

How do banks make profits?

Accepted Answer

They charge borrower...

Exam 13: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

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

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Which of the following numbers is not associated with shares of a company's stock?

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Managed funds

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A corporation's earnings are

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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

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct AnswerverifiedShow Answer

Financial crises seldom involve economic downturns.

Correct AnswerverifiedShow Answer

Index funds

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If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

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.

Correct AnswerverifiedShow Answer

If the government currently has a budget deficit, then

Correct AnswerverifiedShow Answer

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, public saving is equal to

Correct AnswerverifiedShow Answer

How do banks make profits?

Correct AnswerverifiedThey charge borrower...View AnswerShow Answer

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Correct AnswerverifiedShow Answer

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Correct AnswerverifiedShow Answer

A decrease in the budget deficit

Correct AnswerverifiedShow Answer

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Correct AnswerverifiedShow Answer

Which of the following is an example of financial intermediation?

Correct AnswerverifiedShow Answer

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They charge borrower...
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