Question 1

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

Question 2

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)   investment falls by $1b.
B)   investment falls by $3b.
C)   investment increases by $1b.
D)   investment falls by $2b.E) A) and D)
F) A) and C)

Question 3

When the government's budget deficit increases

Accepted Answer

A)   the government is borrowing less and public savings falls.
B)   the government is borrowing less and public savings increases.
C)   the government is borrowing more and public savings falls.
D)   the government is borrowing more and public savings increases.E) A) and B)
F) A) and C)

Question 4

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A)   $5 billion
B)   $4 billion
C)   $3 billion
D)   $11 billionE) B) and D)
F) C) and D)

Question 5

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

Accepted Answer

A)   3.5 percent.
B)   5 percent.
C)   9 percent
D)   7 percent.E) A) and C)
F) None of the above

Question 6

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Accepted Answer

A)   debt finance and so become part owners of Crate and Barrel.
B)   debt finance and so become creditors of Crate and Barrel.
C)   equity finance and so become part owners of Crate and Barrel.
D)   equity finance and so become creditors of Crate and Barrel.E) B) and C)
F) None of the above

Question 7

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Accepted Answer

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

Question 8

Other things the same, a government budget deficit

Accepted Answer

A)   reduces public saving, but not national saving.
B)   reduces national saving, but not public saving.
C)   reduces both public and national saving.
D)   reduces neither public saving nor national saving.E) None of the above
F) B) and C)

Question 9

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Accepted Answer

A)   2.8 percent.
B)   2.0 percent.
C)   1.6 percent.
D)   0.4 percent.E) A) and B)
F) A) and C)

Question 10

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 11

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A)   there is a surplus and the interest rate is above the equilibrium level.
B)   there is a surplus and the interest rate is below the equilibrium level.
C)   there is a shortage and the interest rate is above the equilibrium level.
D)   there is a shortage and the interest rate is below the equilibrium level.E) A) and C)
F) All of the above

Question 12

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, national saving is equal to

Accepted Answer

A)   $1.1 trillion.
B)   $2.9 trillion.
C)   $1.2 trillion.
D)   $1.7 trillion.E) A) and C)
F) A) and B)

Question 13

If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Accepted Answer

A)   desired saving and desired investment both fall
B)   desired saving and desired investment both rise
C)   desired saving falls and desired investment rises
D)   desired saving rises and desired investment fallsE) All of the above
F) A) and C)

Question 14

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Question 15

When a country saves a larger portion of its GDP than it did before, it will have

Accepted Answer

A)   more capital and higher productivity.
B)   more capital and lower productivity.
C)   less capital and higher productivity.
D)   less capital and lower productivity.E) A) and D)
F) A) and C)

Question 16

A decrease in the budget deficit

Accepted Answer

A)   makes investment spending fall.
B)   makes investment spending rise.
C)   does not affect investment spending.
D)   may increase, decrease, or not affect investment spending if private saving doesn't change.E) None of the above
F) B) and C)

Question 17

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

A)   interest rates and the equilibrium quantity of loanable funds rise.
B)   interest rates rise and the equilibrium quantity of loanable funds fall.
C)   interest rates fall and the equilibrium quantity of loanable funds rise.
D)   interest rates and the equilibrium quantity of loanable funds fall.E) None of the above
F) C) and D)

Question 18

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Question 19

A bond that never matures is known as a

Accepted Answer

A)   perpetuity.
B)   an intermediary bond.
C)   an indexed bond.
D)   a junk bond.E) B) and C)
F) A) and D)

Question 20

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A)   7 percent.
B)   4 percent.
C)   3 percent.
D)   10 percent.E) A) and B)
F) A) and C)

Exam 18: Saving, Investment, and the Financial System

When the government's budget deficit increases

Correct Answer
verified

Other things the same, a government budget deficit

Correct Answer
verified

Correct Answer
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When a country saves a larger portion of its GDP than it did before, it will have

Correct Answer
verified

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Correct Answer
verified

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Correct Answer
verified

If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Correct Answer
verified

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, national saving is equal to

Correct Answer
verified

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

Correct Answer
verified

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Correct Answer
verified

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct Answer
verified

National saving is equal to Y - T - C.

Correct Answer
verified

A decrease in the budget deficit

Correct Answer
verified

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct Answer
verified

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Correct Answer
verified

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

Correct Answer
verified

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct Answer
verified

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Correct Answer
verified

A bond that never matures is known as a

Correct Answer
verified

What is a bond buyer promised when she buys a bond?

Correct Answer
verified

Exam 18: Saving, Investment, and the Financial System

When the government's budget deficit increases

Correct AnswerverifiedShow Answer

Other things the same, a government budget deficit

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When a country saves a larger portion of its GDP than it did before, it will have

Correct AnswerverifiedShow Answer

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Correct AnswerverifiedShow Answer

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Correct AnswerverifiedShow Answer

If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, national saving is equal to

Correct AnswerverifiedShow Answer

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is

Correct AnswerverifiedShow Answer

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

National saving is equal to Y - T - C.

Correct AnswerverifiedShow Answer

A decrease in the budget deficit

Correct AnswerverifiedShow Answer

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct AnswerverifiedShow Answer

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct AnswerverifiedShow Answer

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Correct AnswerverifiedShow Answer

A bond that never matures is known as a

Correct AnswerverifiedShow Answer

What is a bond buyer promised when she buys a bond?

Correct AnswerverifiedShow Answer

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