Question 1

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Accepted Answer

default ri...

Question 2

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 B)
F) C) and D)

Question 3

If the demand for loanable funds shifts to the right, then initially there is a

Accepted Answer

A)  surplus so the interest rate will fall.
B)  surplus so the interest rate will rise.
C)  shortage so the interest rate will fall.
D)  shortage so the interest rate will rise.E) B) and C)
F) A) and C)

Question 4

Which of the following is correct?

Accepted Answer

A)  In the national income accounts, investment and private saving refer to the same thing.
B)  In a closed economy if national saving is greater than zero, then everyone must be saving.
C)  The financial system channels funds from savers to borrowers.
D)  People whose consumption exceeds their income are savers.E) A) and D)
F) None of the above

Question 5

​Bob's new startup goes public and sells shares of future profits. Bob's startup 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) B) and D)

Question 6

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

Question 7

When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes increase saving incentives,...

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 D)
F) A) and C)

Question 9

In a closed economy, what remains after paying for consumption and government purchases is

Accepted Answer

A)  national disposable income.
B)  national saving.
C)  public saving.
D)  private saving.E) A) and D)
F) B) and C)

Question 10

A closed economy does not engage in international trade, therefore

Accepted Answer

A)  national saving is less than investment (S 
B)  net exports (NX)  are zero.
C)  Y - C - G > I.
D)  national saving is zero.E) B) and C)
F) All of the above

Question 11

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)  Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
B)  Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
C)  Bond A has a term of 1 year and Bond B has a term of 5 years.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 12

Public saving is the difference between _____ and _____.

Accepted Answer

tax revenue, governm...

Question 13

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i...

Question 14

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)  pays continuously compounded interest.
B)  pays interest only when it matures.
C)  never matures.
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise.E) None of the above
F) B) and C)

Question 15

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 16

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)  crowding out would not be a consequence of an increase in the budget deficit.
B)  higher interest rates would not be a consequence of an increase in the budget deficit.
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease.
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits.E) C) and D)
F) All of the above

Question 17

On which of these bonds is the prospect of default least likely?

Accepted Answer

A)  a junk bond
B)  a bond issued by the state of Arizona
C)  a bond issued by the federal government
D)  a bond issued by General Electric CorporationE) A) and B)
F) All of the above

Question 18

Which of the following is correct?

Accepted Answer

A)  Some bonds have terms as short as a few months.
B)  Because they are so risky, junk bonds pay a low rate of interest.
C)  Corporations buy bonds to raise funds.
D)  All of the above are correct.E) A) and B)
F) None of the above

Question 19

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 20

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national
saving = $15,000.
-Refer to Scenario 26-1. For this economy, investment amounts to

Accepted Answer

A)  $38,000.
B)  $18,000.
C)  $12,000.
D)  $15,000.E) B) and C)
F) C) and D)

Exam 26: Saving, Investment, and the Financial System

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

Correct Answer
verified

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

Correct Answer
verified

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

Correct Answer
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On which of these bonds is the prospect of default least likely?

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

Public saving is the difference between _ and _.

Correct Answer
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tax revenue, governm...
View Answer

Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

Correct Answer
verified

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Correct Answer
verified

When tax code changes increase saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

Correct Answer
verified
deficit, i...
View Answer

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Correct Answer
verified
default ri...
View Answer

In a closed economy, what remains after paying for consumption and government purchases is

Correct Answer
verified

A perpetuity is distinguished from other bonds in that it

Correct Answer
verified

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct Answer
verified

If the demand for loanable funds shifts to the right, then initially there is a

Correct Answer
verified

A corporation's earnings are

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Correct Answer
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Which of the following is correct?

Correct Answer
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A closed economy does not engage in international trade, therefore

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

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

On which of these bonds is the prospect of default least likely?

Correct AnswerverifiedShow Answer

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

Public saving is the difference between _____ and _____.

Correct Answerverifiedtax revenue, governm...View AnswerShow Answer

​Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

Correct AnswerverifiedShow Answer

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Correct AnswerverifiedShow Answer

When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.

Correct AnswerverifiedShow Answer

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Correct Answerverifieddeficit, i...View AnswerShow Answer

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

Correct Answerverifieddefault ri...View AnswerShow Answer

In a closed economy, what remains after paying for consumption and government purchases is

Correct AnswerverifiedShow Answer

A perpetuity is distinguished from other bonds in that it

Correct AnswerverifiedShow Answer

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the right, then initially there is a

Correct AnswerverifiedShow Answer

A corporation's earnings are

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

A closed economy does not engage in international trade, therefore

Correct AnswerverifiedShow Answer

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

Public saving is the difference between _ and _.

Correct Answer
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tax revenue, governm...
View Answer

Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

Correct Answer
verified

Correct Answer
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When tax code changes increase saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

Correct Answer
verified
deficit, i...
View Answer

Correct Answer
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default ri...
View Answer

Correct Answer
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