Question 1

Crowding out occurs when investment declines because

Accepted Answer

A)   a budget deficit makes interest rates rise.
B)   a budget deficit makes interest rates fall.
C)   a budget surplus makes interest rates rise.
D)   a budget surplus makes interest rates fall.E) B) and C)
F) C) and D)

Question 2

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national saving are both $1 billion.

Accepted Answer

A) True 
 B)False

Question 3

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Accepted Answer

A)   only ABC
B)   only JLG
C)   both ABC and JLG
D)   neither ABC nor JLGE) None of the above
F) A) and C)

Question 4

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Accepted Answer

A) True 
 B)False

Question 5

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Accepted Answer

A)   supply of loanable funds shifted to the right.
B)   supply of loanable funds shifted to the left.
C)   demand for loanable funds shifted to the right.
D)   demand for loanable funds shifted to the left.E) All of the above
F) A) and B)

Question 6

Y = C + I + G + NX is an identity because

Accepted Answer

A)   each symbol identifies a macroeconomic variable.
B)   the right-hand and left-hand sides are equal when an equilibrium is reached.
C)   the equality holds due to the way the variables are defined.
D)   None of the above is correct.E) C) and D)
F) None of the above

Question 7

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Accepted Answer

A saver earns more than he spe...

Question 8

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

Question 9

Table 26-1 
-Refer to Table 26-1. What was Hershey's earnings per share?

Accepted Answer

A)   $29.90
B)   $2.79
C)   $1.50
D)   $0.36E) A) and B)
F) A) and C)

Question 10

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A)   a movement from Point A to Point C
B)   a movement from Point B to Point A
C)   a movement from Point B to Point F
D)   a movement from Point C to Point BE) A) and D)
F) A) and C)

Question 11

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Accepted Answer

A)   raise the demand for existing shares of the stock, causing the price to rise.
B)   decrease the demand for existing shares of the stock, causing the price to fall.
C)   raise the supply of the existing shares of stock, causing the price to rise.
D)   raise the supply of the existing shares of stock, causing the price to fall.E) B) and D)
F) A) and B)

Question 12

How do banks make profits?

Accepted Answer

They charge borrower...

Question 13

When the government runs a budget deficit,

Accepted Answer

A)   interest rates are lower than they would be if the budget were balanced.
B)   national saving is higher than it would be if the budget were balanced.
C)   investment is lower than it would be if the budget were balanced.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 14

A policy that induces people to save more shifts

Accepted Answer

A)   the supply of loanable funds and raises interest rates.
B)   the supply of loanable funds and reduces interest rates.
C)   the demand for loanable funds and raises interest rates.
D)   the demand for loanable funds and reduces interest rates.E) All of the above
F) B) and D)

Question 15

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

Accepted Answer

A)   investment is $6 billion and consumption is $7 billion.
B)   investment is $6 billion and consumption is $6 billion.
C)   investment is $7 billion and consumption is $7 billion.
D)   investment is $7 billion and consumption is $6 billion.E) B) and C)
F) A) and D)

Question 16

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 17

Other things being constant, when a firm sells new shares of stock, the

Accepted Answer

A)   supply of the stock increases and the price decreases.
B)   supply of the stock decreases and the price increases.
C)   demand for the stock increases and the price increases.
D)   demand for the stock decreases and the price decreases.E) B) and D)
F) B) and C)

Question 18

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Question 19

Retained earnings are

Accepted Answer

A)   earnings of a company that are not paid out to stockholders.
B)   the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C)   the single most important piece of information about a stock.
D)   computed by multiplying the dividend yield by the price of the stock.E) None of the above
F) B) and D)

Question 20

A stock's dividend yield is the

Accepted Answer

A)   dividend as a percentage of the price per share.
B)   stock price as a percentage of the dividend.
C)   dividend as a percentage of the retained earnings per share.
D)   retained earnings per share as the percentage of the dividend.E) A) and B)
F) B) and C)

Exam 26: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

A stock's dividend yield is the

Correct AnswerverifiedShow Answer

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Correct AnswerverifiedShow Answer

Other things being constant, when a firm sells new shares of stock, the

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Correct AnswerverifiedShow Answer

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Correct AnswerverifiedShow Answer

When the government runs a budget deficit,

Correct AnswerverifiedShow Answer

Crowding out occurs when investment declines because

Correct AnswerverifiedShow Answer

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Correct AnswerverifiedShow Answer

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Correct AnswerverifiedShow Answer

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national saving are both $1 billion.

Correct AnswerverifiedShow Answer

Retained earnings are

Correct AnswerverifiedShow Answer

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Correct AnswerverifiedA saver earns more than he spe...View AnswerShow Answer

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Correct AnswerverifiedShow Answer

A policy that induces people to save more shifts

Correct AnswerverifiedShow Answer

Table 26-1 -Refer to Table 26-1. What was Hershey's earnings per share?

Correct AnswerverifiedShow Answer

How do banks make profits?

Correct AnswerverifiedThey charge borrower...View AnswerShow Answer

Y = C + I + G + NX is an identity because

Correct AnswerverifiedShow Answer

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A saver earns more than he spe...
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They charge borrower...
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