Question 1

Identify each of the following acts as representing either saving or investment.
a.
Fred uses some of his income to buy government bonds.
b.
Julie takes some of her income and buys mutual funds.
c.
Alex purchases a new truck for his delivery business using borrowed funds.
d.
Elaine uses some of her income to buy stock in a major corporation.
e.
Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a.
Fred is saving.
b.
Julie is...

Question 2

Which of the following is not correct?

Accepted Answer

A)   If you buy a bond from a corporation,you can sell the bond to someone else before it matures.
B)   Term refers to the scheduling of periodic interest rate payments on a bond.
C)   A bond is an IOU.
D)   There are millions of different bonds in the U.S.economy.E) A) and D)
F) None of the above

Question 3

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) C) and D)
F) A) and D)

Question 4

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion.What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 5

Suppose there is a shortage in the market for loanable funds.Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Accepted Answer

The interest rate is...

Question 6

If the government reduces transfer payments,what happens to the budget deficit? What curve does this change in the market for loanable funds,which direction does it shift,and what happens to the equilibrium interest rate?

Accepted Answer

A reduction in transfer paymen...

Question 7

A budget surplus is created if

Accepted Answer

A)   the government sells more bonds than it buys back.
B)   the government spends more than it receives in tax revenue.
C)   private saving is greater than zero.
D)   None of the above is correct.E) None of the above
F) A) and C)

Question 8

Other things the same,the higher the rate of saving and investment in a country,the higher will be the standard of living in the future.

Accepted Answer

A) True 
 B)False

Question 9

The country of Yokovia does not trade with any other country.Its GDP is $20 billion.Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments.Consumption equals $15 billion and investment equals $2 billion.What is public saving in Yokovia,and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A)   -$2 billion and $3 billion
B)   $1 billion and $3 billion
C)   -$1 billion and $4 billion
D)   There is not enough information to answer the question.E) A) and B)
F) A) and C)

Question 10

Which of the following is correct?

Accepted Answer

A)   Lenders sell bonds and borrowers buy them.
B)   Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.
C)   The term junk bonds refers to bonds that have been resold many times.
D)   None of the above is correct.E) B) and C)
F) A) and C)

Question 11

Figure 13-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 13-1.What is measured along the vertical axis of the graph?

Accepted Answer

A)   the nominal interest rate
B)   the real interest rate
C)   the quantity of investment
D)   the quantity of savingE) B) and C)
F) All of the above

Question 12

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is not a characteristic of a bond?

Accepted Answer

A)   its tax treatment
B)   its credit risk
C)   its term
D)   its dividend yieldE) A) and C)
F) B) and D)

Question 14

Digital Publishing has a share price of $28,retained earnings of $0.60 per share,and a dividend yield of 5 percent.What is Digital's price-earnings ratio?

Accepted Answer

A)   24
B)   16
C)   14
D)   12E) C) and D)
F) B) and D)

Question 15

If people expect future earnings of Galt Corporation to be high relative to current earnings,then

Accepted Answer

A)   the P/E ratio of its stock will be high.A P/E ratio of 8 is relatively high.
B)   the P/E ratio of its stock will be high.A P/E ratio of 8 is relatively low.
C)   the P/E ratio of its stock will be low.A P/E ratio of 8 is relatively high.
D)   the P/E ratio of its stock will be low.A P/E ratio of 8 is relatively low.E) A) and B)
F) A) and C)

Question 16

A creditor of a corporation holds

Accepted Answer

A)   bonds sold by the corporation.If the corporation experiences financial difficulties stock holders are paid before bond holders.
B)   bonds sold by the corporation.If the corporation experiences financial difficulties bond holders are paid before stock holders.
C)   stocks sold by the corporation.If the corporation experiences financial difficulties stock holders are paid before bond holders.
D)   stocks sold by the corporation.If the corporation experiences financial difficulties bond holders are paid before stock holders.E) C) and D)
F) A) and B)

Question 17

In the language of macroeconomics,investment refers to

Accepted Answer

A)   saving.
B)   the purchase of new capital.
C)   the purchase of stocks,bonds,or mutual funds.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 18

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we would expect this reduction in the budget deficit to have

Accepted Answer

A)   increased both interest rates and investment.
B)   increased interest rates and decreased investment.
C)   decreased interest rates and increased investment.
D)   decreased both interest rates and investment.E) A) and D)
F) None of the above

Question 19

A larger budget surplus

Accepted Answer

A)   raises the interest rate and investment.
B)   reduces the interest rate and investment.
C)   raises the interest rate and reduces investment.
D)   reduces the interest rate and raises investment.E) None of the above
F) A) and B)

Question 20

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

Exam 26: Saving,investment,and the Financial System

Suppose there is a shortage in the market for loanable funds.Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Correct Answer
verified
The interest rate is...
View Answer

Figure 13-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 13-1.What is measured along the vertical axis of the graph?

Correct Answer
verified

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 Answer
verified

A larger budget surplus

Correct Answer
verified

Digital Publishing has a share price of $28,retained earnings of $0.60 per share,and a dividend yield of 5 percent.What is Digital's price-earnings ratio?

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Other things the same,the higher the rate of saving and investment in a country,the higher will be the standard of living in the future.

Correct Answer
verified

In the language of macroeconomics,investment refers to

Correct Answer
verified

If people expect future earnings of Galt Corporation to be high relative to current earnings,then

Correct Answer
verified

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion.What is investment?

Correct Answer
verified

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

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

Correct Answer
verified

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct Answer
verified

If the government reduces transfer payments,what happens to the budget deficit? What curve does this change in the market for loanable funds,which direction does it shift,and what happens to the equilibrium interest rate?

Correct Answer
verified
A reduction in transfer paymen...
View Answer

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we would expect this reduction in the budget deficit to have

Correct Answer
verified

Correct Answer
verified
a.
Fred is saving.
b.
Julie is...
View Answer

Which of the following is not a characteristic of a bond?

Correct Answer
verified

A creditor of a corporation holds

Correct Answer
verified

A budget surplus is created if

Correct Answer
verified

Exam 26: Saving,investment,and the Financial System

Suppose there is a shortage in the market for loanable funds.Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Correct AnswerverifiedThe interest rate is...View AnswerShow Answer

Figure 13-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 13-1.What is measured along the vertical axis of the graph?

Correct AnswerverifiedShow Answer

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

A larger budget surplus

Correct AnswerverifiedShow Answer

Digital Publishing has a share price of $28,retained earnings of $0.60 per share,and a dividend yield of 5 percent.What is Digital's price-earnings ratio?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Other things the same,the higher the rate of saving and investment in a country,the higher will be the standard of living in the future.

Correct AnswerverifiedShow Answer

In the language of macroeconomics,investment refers to

Correct AnswerverifiedShow Answer

If people expect future earnings of Galt Corporation to be high relative to current earnings,then

Correct AnswerverifiedShow Answer

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion.What is investment?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is correct?

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

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

If the government reduces transfer payments,what happens to the budget deficit? What curve does this change in the market for loanable funds,which direction does it shift,and what happens to the equilibrium interest rate?

Correct AnswerverifiedA reduction in transfer paymen...View AnswerShow Answer

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we would expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Fred is saving.b.Julie is...View AnswerShow Answer

Which of the following is not a characteristic of a bond?

Correct AnswerverifiedShow Answer

A creditor of a corporation holds

Correct AnswerverifiedShow Answer

A budget surplus is created if

Correct AnswerverifiedShow Answer

Correct Answer
verified
The interest rate is...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
A reduction in transfer paymen...
View Answer

Correct Answer
verified

Correct Answer
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a.
Fred is saving.
b.
Julie is...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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