Question 1

A high demand for a company's stock is an indication that

Accepted Answer

A)   the company is in need of funds.
B)   the company has recently sold a large quantity of bonds.
C)   people are optimistic about the company's future.
D)   people are pessimistic about the company's future.E) B) and C)
F) A) and B)

Question 2

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

Accepted Answer

A)   the nominal interest rate
B)   the real interest rate
C)   the inflation rate
D)   the dividend yieldE) A) and B)
F) C) and D)

Question 3

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

Question 4

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)   the supply of loanable funds does not change; a higher interest rate reduces private saving
B)   the supply of loanable funds does not change; a higher interest rate raises private saving
C)   at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving
D)   at any interest rate the supply of loanable funds is less; a higher interest rate raises private savingE) None of the above
F) A) and C)

Question 5

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 B)
F) B) and C)

Question 6

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Accepted Answer

A)   Kroger's plans to use equity financing and its action is part of the demand for loanable funds.
B)   Kroger's plans to use equity financing and its action is part of the supply of loanable funds.
C)   Kroger's plans to use debt financing and its action is part of the demand for loanable funds.
D)   Kroger's plans to use debt financing and its action is part of the supply of loanable funds.E) B) and C)
F) A) and C)

Question 7

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 8

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)   -500
B)   500
C)   2,000
D)   None of the above is correct.E) A) and C)
F) B) and C)

Question 9

Profits not paid out to stockholders are

Accepted Answer

A)   retained earnings.
B)   known as dividends.
C)   the denominator in the price-earnings ratio.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 10

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 11

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 12

Use the following table to answer the following questions.
Table 26-1
 
-Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Accepted Answer

A)   GenMills
B)   Microsoft
C)   Graco
D)   HersheyE) A) and B)
F) B) and D)

Question 13

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)   part owners of Huedepool are paid before bondholders get paid anything at all.
B)   part owners of Huedepool are paid after bondholders get paid.
C)   creditors of Huedepool are paid before bondholders get paid anything at all.
D)   creditors of Huedepool are paid after bondholders get paid.E) None of the above
F) B) and D)

Question 14

Which of the following statements about mutual funds is correct?

Accepted Answer

A)   A mutual fund is not a financial intermediary.
B)   A disadvantage of buying mutual funds is a lack of diversification
C)   People who buy shares from a mutual fund are guaranteed a minimum return.
D)   On average index funds outperform managed funds.E) C) and D)
F) A) and C)

Question 15

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease, ...

Question 16

To state that public saving is equal to investment, for a closed economy, is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 17

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Accepted Answer

A)   Because they have the same term to maturity the interest rates should be the same.
B)   Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate.
C)   Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.
D)   It is not possible to say if one bond has a higher interest rate than the other.E) A) and D)
F) A) and B)

Question 18

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 C)
F) A) and D)

Question 19

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Accepted Answer

A)   The 2 percent bond is more risky than the 5 percent bond.
B)   The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond.
C)   The 2 percent bond has a longer term than the 5 percent bond.
D)   The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.E) B) and C)
F) A) and B)

Question 20

A closed economy

Accepted Answer

A)   does not trade with other economies.
B)   is centrally-planned.
C)   does not allow financial intermediation.
D)   All of the above are correct.E) None of the above
F) All of the above

Exam 13: Saving, Investment, and the Financial System

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

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Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

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If Huedepool Beer runs into financial difficulty, the stockholders as

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Which of the following statements about mutual funds is correct?

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An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

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A closed economy

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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.

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Which of the following are effects of an increased budget deficit?

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A high demand for a company's stock is an indication that

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Profits not paid out to stockholders are

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Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

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Two of the economy's most important financial intermediaries are

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A decrease in taxes on interest income would increase the interest rate.

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Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

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Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

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Net exports must equal zero for any economy

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The source of the supply of loanable funds is

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To state that public saving is equal to investment, for a closed economy, is to state an accounting identity.

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An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Correct Answerverifieddecrease, ...View AnswerShow Answer

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

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An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

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decrease, ...
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