Question 1

Financial intermediaries are

Accepted Answer

A)  the same as financial markets.
B)  individuals who make profits by buying a stock low and selling it high.
C)  a more general name for financial assets such as stocks, bonds, and checking accounts.
D)  financial institutions through which savers can indirectly provide funds to borrowers.E) None of the above
F) A) and B)

Question 2

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Accepted Answer

A)  8 percent.
B)  2 percent.
C)  3 percent.
D)  5 percent.E) A) and C)
F) A) and B)

Question 3

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is correct?

Accepted Answer

A)  As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate.
B)  The interest rate that is usually reported is the nominal interest rate.
C)  If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 5

XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings per share of $3. What was its dividend yield?

Accepted Answer

A)  4%
B)  3%
C)  1%
D)  None of the above is correct.E) A) and B)
F) B) and C)

Question 6

Index funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than managed mutual funds.
B)  typically have a higher rate of return and lower costs than managed mutual funds.
C)  typically have a lower rate of return and higher costs than managed mutual funds.
D)  typically have a lower rate of return and lower costs than managed mutual funds.E) A) and B)
F) A) and C)

Question 7

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)  the government buys goods from another country
B)  someone buys stock in an American company
C)  a firm increases its capital stock
D)  All of the above are correct.E) A) and D)
F) None of the above

Question 8

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

Question 9

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

Accepted Answer

A)  the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)  Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C)  Bond A has a term of 20 years and Bond B has a term of 2 years.
D)  All of the above are correct.E) C) and D)
F) B) and D)

Question 10

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A)  the supply of, and demand for, those shares determine the price per share.
B)  each share represents ownership of 1 percent of the firm.
C)  the firm is engaging in equity finance.
D)  All of the above are correct.E) A) and D)
F) All of the above

Question 11

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

There is a...

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, investment amounts to

Accepted Answer

A)  $0.4 trillion.
B)  $2.1 trillion.
C)  $1.7 trillion.
D)  $1.2 trillion.E) B) and C)
F) C) and D)

Question 13

Which of the following statements is correct?

Accepted Answer

A)  A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)  A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)  Expectations about the business cycle have no impact on stock prices.E) B) and D)
F) None of the above

Question 14

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A)  S = I - G
B)  I = Y - C + G
C)  Y = C + I + G
D)  Y = C + I + G + NXE) A) and C)
F) All of the above

Question 15

Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

Accepted Answer

A)  The 2 percent bond is more risky than the 5 percent bond.
B)  The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond.
C)  The 2 percent bond has a longer term than the 5 percent bond.
D)  The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.E) A) and B)
F) A) and C)

Question 16

If the demand for loanable funds shifts to the left, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rises.
B)  and quantity of loanable funds falls.
C)  rises and the quantity of loanable funds falls.
D)  falls and the quantity of loanable funds rises.E) B) and C)
F) A) and D)

Question 17

Which of the following is correct?

Accepted Answer

A)  The maturity of a bond refers to the amount to be paid back.
B)  The principal of the bond refers to the person selling the bond.
C)  A bond buyer cannot sell a bond before it matures.
D)  None of the above is correct.E) A) and D)
F) All of the above

Question 18

Which of the following is true concerning interest rates on bonds?

Accepted Answer

A)  The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
B)  The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond lower than otherwise.
C)  The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
D)  The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond lower than otherwise.E) All of the above
F) A) and B)

Question 19

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

A decrease in taxes on interest income would increase the interest rate.

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Which of the following is true concerning interest rates on bonds?

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Which of the following equations will always represent GDP in an open economy?

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If the demand for loanable funds shifts to the left, then the equilibrium interest rate

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Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?

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Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

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Which of the following statements is correct?

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XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings per share of $3. What was its dividend yield?

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Financial intermediaries are

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If a firm sells a total of 100 shares of stock, then

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

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

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

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Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

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Which of the following statements is correct?

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Which of the following is correct?

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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, investment amounts to

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Index funds

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Which of the following would be included as investment in the GDP accounts?

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If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

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