Question 1

If the budget deficit increases then

Accepted Answer

A)   saving and the interest rate rise
B)   saving rises and the interest rate falls
C)   saving falls and the interest rate rises
D)   saving and the interest rate fallsE) All of the above
F) A) and B)

Question 2

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

Question 3

Consider the expressions T - G and Y - T - C.Which of the following statements is correct?

Accepted Answer

A)   Each one of these is equal to national saving.
B)   Each one of these is equal to public saving.
C)   The first of these is private saving; the second one is public saving.
D)   The first of these is public saving; the second one is private saving.E) All of the above
F) B) and C)

Question 4

Figure 18-4.On the horizontal axis of the graph,L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 18-4.If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent,then the equilibrium real interest rate is

Accepted Answer

A)   lower than 6 percent..
B)   6 percent.
C)   between 6 percent and 8 percent.
D)   higher than 8 percent.E) A) and D)
F) B) and C)

Question 5

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

Question 6

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent,then the real interest rate is

Accepted Answer

A)   7 percent.
B)   3 percent.
C)   2.5 percent.
D)   .4 percent.E) A) and B)
F) C) and D)

Question 7

When the government budget deficit rises,national saving is reduced,interest rates rise,and investment falls.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is a financial-market transaction?

Accepted Answer

A)   A saver buys shares in a mutual fund.
B)   A saver deposits money into a credit union.
C)   A saver buys a bond a corporation has just issued so it can purchase capital.
D)   None of the above is correct.E) A) and D)
F) B) and D)

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

A budget deficit

Accepted Answer

A)   changes the supply of loanable funds.
B)   changes the demand for loanable funds.
C)   changes both the supply of and demand for loanable funds.
D)   does not influence the supply of or the demand for loanable funds.E) A) and C)
F) B) and C)

Question 11

If there is shortage of loanable funds,then

Accepted Answer

A)   the supply for loanable funds shifts right and the demand shifts left.
B)   the supply for loanable funds shifts left and the demand shifts right.
C)   neither curve shifts,but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)   neither curve shifts,but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.E) B) and C)
F) None of the above

Question 12

All financial intermediaries are financial institutions,but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 13

A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

Accepted Answer

A)   in our model of the loanable funds market,we define "loanable funds" as the flow of resources available to fund private investment.
B)   in our model of the loanable funds market,we define "loanable funds" as the flow of resources available from private saving.
C)   markets for government debt are fundamentally different from markets for private debt.
D)   of our assumption that the economy is closed.E) A) and D)
F) C) and D)

Question 14

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A)   Private saving is equal to zero.
B)   Public saving is equal to zero.
C)   The economy's government is running neither a surplus nor a deficit.
D)   No restriction is necessary; saving and investment are equal for all closed economies.E) A) and D)
F) A) and C)

Question 15

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 16

Table 18-2
 
-Refer to Table 18-2.Which company had the highest earnings per share?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H.J.Heinz and Co.
D)   Kellog Co.E) All of the above
F) B) and C)

Question 17

As chief financial officer you sell newly issued bonds on behalf of your firm.Your firm is

Accepted Answer

A)   borrowing directly.
B)   borrowing indirectly.
C)   lending directly.
D)   lending indirectly.E) A) and C)
F) None of the above

Question 18

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below,the economy ...

Question 19

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) C) and D)
F) None of the above

Question 20

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

Exam 18: Saving,investment,and the Financial System

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?

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Table 18-2 -Refer to Table 18-2.Which company had the highest earnings per share?

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A policy that induces people to save more shifts

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Which of the following is a financial-market transaction?

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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?

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

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If there is shortage of loanable funds,then

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Managed funds

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Figure 18-4.On the horizontal axis of the graph,L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 18-4.If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent,then the equilibrium real interest rate is

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.

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Which of the following restrictions implies that saving and investment are equal for a closed economy?

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As chief financial officer you sell newly issued bonds on behalf of your firm.Your firm is

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A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

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If the nominal interest rate is 5 percent and the rate of inflation is 2 percent,then the real interest rate is

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All financial intermediaries are financial institutions,but not all financial institutions are financial intermediaries.

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If the budget deficit increases then

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When the government budget deficit rises,national saving is reduced,interest rates rise,and investment falls.

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A budget deficit

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Consider the expressions T - G and Y - T - C.Which of the following statements is correct?

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Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

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As shown in the graph below,the economy ...
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