Question 1

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?

Accepted Answer

A)   20, 2.5 percent.
B)   20, 5 percent.
C)   40, 2.5 percent.
D)   40, 5 percent.E) A) and B)
F) B) and D)

Question 2

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Accepted Answer

A)   their consumption expenditures are being financed by someone else's saving.
B)   their consumption expenditures are being financed by someone else's investment.
C)   their investments are being financed by someone else's saving.
D)   their saving is being financed by someone else's investment.E) A) and D)
F) A) and C)

Question 3

Which of the following is a certificate of indebtedness?

Accepted Answer

A)   both stocks and bonds
B)   stocks but not bonds
C)   bonds but not stocks
D)   neither stocks nor bondsE) A) and B)
F) A) and C)

Question 4

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

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 below its...

Question 6

A high demand for a company's stock is an indication that

Accepted Answer

A)   the company is in need of funds.
B)   the company has recently sold a large quantity of bonds.
C)   people are optimistic about the company's future.
D)   people are pessimistic about the company's future.E) A) and B)
F) C) and D)

Question 7

The source of the supply of loanable funds is

Accepted Answer

A)   saving, and the source of the demand for loanable funds is investment.
B)   consumption, and the source of the demand for loanable funds is investment.
C)   investment, and the source of the demand for loanable funds is saving.
D)   the interest rate, and the source of the demand for loanable funds is saving.E) B) and D)
F) None of the above

Question 8

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Accepted Answer

Private saving is Y ...

Question 9

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Accepted Answer

default ri...

Question 10

Suppose government expenditures on goods and services increase, transfers are unchanged, and taxes rise by less than the increase in expenditures. These changes in the government's budget cause

Accepted Answer

A)   both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall.
B)   both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise.
C)   the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall.
D)   the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.E) B) and D)
F) All of the above

Question 11

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Accepted Answer

A)   the demand for the stock is relatively high.
B)   the supply of the stock is relatively low.
C)   people expect the firm's earnings to rise.
D)   people expect the firm's earnings to fall.E) B) and D)
F) All of the above

Question 12

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Accepted Answer

A)   the decline in confidence in financial institutions
B)   the credit crunch
C)   the economic downturn
D)   the decline in asset pricesE) None of the above
F) B) and C)

Question 13

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Accepted Answer

A)   the demand for this company's stock to decrease, so the price would rise.
B)   the demand for this company's stock to decrease, so the price would fall.
C)   the supply of this company's stock to decrease, so the price would fall.
D)   the supply of this company's stock to decrease, so the price would rise.E) A) and B)
F) None of the above

Question 14

Which of the following is not correct?

Accepted Answer

A)   By saving a larger portion of its GDP, a country can raise its output per worker.
B)   Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date.
C)   Financial intermediaries are the only type of financial institution.
D)   The financial system helps match people's saving with other people's borrowing.E) A) and B)
F) C) and D)

Question 15

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

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

Question 16

The ratio of debt to GDP in the United States

Accepted Answer

A)   tends to rise during wars.
B)   rose during the decade that began in 2001.
C)   fell during the late 1990s.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 17

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Accepted Answer

A)   supply of loanable funds to the right, causing interest rates to fall.
B)   supply of loanable funds to the left, causing interest rates to rise.
C)   demand for loanable funds to the right, causing interest rates to rise.
D)   demand for loanable funds to the left, causing interest rates to fall.E) A) and B)
F) A) and C)

Question 18

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

it has a longer term to maturi...

Question 19

The sale of stocks

Accepted Answer

A)   and bonds to raise money is called debt finance.
B)   and bonds to raise money is called equity finance.
C)   to raise money is called debt finance, while the sale of bonds to raise funds is called equity finance.
D)   to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.E) A) and D)
F) A) and C)

Question 20

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Accepted Answer

A)   $5 billion and $45 billion
B)   -$5 billion and $45 billion
C)   $5 billion and $50 billion
D)   -$5 billion and $50 billionE) A) and B)
F) C) and D)

Exam 26: Saving, Investment, and the Financial System

The sale of stocks

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The source of the supply of loanable funds is

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At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

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A decrease in the budget deficit

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Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Correct AnswerverifiedShow Answer

Suppose government expenditures on goods and services increase, transfers are unchanged, and taxes rise by less than the increase in expenditures. These changes in the government's budget cause

Correct AnswerverifiedShow Answer

A high demand for a company's stock is an indication that

Correct AnswerverifiedShow Answer

List three characteristics of a bond that would make its interest rate higher than otherwise.

Correct Answerverifiedit has a longer term to maturi...View AnswerShow Answer

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

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In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Correct AnswerverifiedPrivate saving is Y ...View AnswerShow Answer

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Correct AnswerverifiedShow Answer

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Correct AnswerverifiedShow Answer

The ratio of debt to GDP in the United States

Correct AnswerverifiedShow Answer

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Correct Answerverifieddefault ri...View AnswerShow Answer

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 below its...View AnswerShow Answer

Which of the following is not correct?

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Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?

Correct AnswerverifiedShow Answer

Which of the following is a certificate of indebtedness?

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

Correct AnswerverifiedShow Answer

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Correct AnswerverifiedShow Answer

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it has a longer term to maturi...
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Private saving is Y ...
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If a firm's priceearnings ratio is relatively low, then it might be an indication that

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The interest rate is below its...
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