Question 1

Long-term bonds are

Accepted Answer

A)   riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
B)   riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
C)   less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
D)   less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) B) and D)
F) B) and C)

Question 2

Mutual funds

Accepted Answer

A)   provide diversification. Shareholders assume all of the risk associated with the mutual fund.
B)   provide diversification. Government insurance eliminates the risk of mutual fund shareholders.
C)   do not provide diversification. Shareholders assume all of the risk associated with the mutual fund
D)   do not provide diversification. Government insurance eliminates the risk of mutual fund shareholders.E) A) and C)
F) A) and D)

Question 3

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

Question 4

In a closed economy, public saving is the amount of

Accepted Answer

A)   income that households have left after paying for taxes and consumption.
B)   income that businesses have left after paying for the factors of production.
C)   tax revenue that the government has left after paying for its spending.
D)   spending that the government undertakes in excess of the taxes it collects.E) A) and D)
F) All of the above C

Question 5

An increase in the quantity of loanable funds traded means that

Accepted Answer

A)   firms are borrowing less and investment decreases.
B)   firms are borrowing less and investment increases.
C)   firms are borrowing more and investment increases.
D)   firms are borrowing more and investment decreases.E) A) and B)
F) All of the above

Question 6

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 7

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)   part owners of Huedepool are paid before bondholders get paid anything at all.
B)   part owners of Huedepool are paid after bondholders get paid.
C)   creditors of Huedepool are paid before bondholders get paid anything at all.
D)   creditors of Huedepool are paid after bondholders get paid.E) A) and C)
F) A) and B)

Question 8

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is $45 million - ...

Question 9

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401k)  and 403b)  tax- deferred retirement accounts?

Accepted Answer

A)   the interest rate and quantity of loanable funds would increase
B)   the interest rate and quantity of loanable funds would decrease.
C)   the interest rate would increase and the quantity of loanable funds would decrease.
D)   the interest rate would decrease and the quantity of loanable funds would increase.E) B) and D)
F) A) and D)

Question 10

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, private saving amounts to

Accepted Answer

A)   $22,000.
B)   $18,000.
C)   $15,000.
D)   $37,000.E) All of the above
F) C) and D)

Question 11

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

Accepted Answer

A)   a junk bond
B)   a municipal bond
C)   a U.S. government bond
D)   a corporate bond issued by Proctor & Gamble CorporationE) None of the above
F) B) and C)

Question 12

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Accepted Answer

A)   Both Altas' sound finances and the long term of the bond.
B)   Atlas' sound finances but not the long term of the bond.
C)   The long term of the bond but not Atlas' sound finances.
D)   Neither Atlas' sound finances nor the long term of the bond.E) A) and D)
F) None of the above

Question 13

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A)   The interest rate and investment would fall.
B)   The interest rate and investment would rise.
C)   The interest rate would rise and investment would fall.
D)   None of the above is necessarily correct.E) A) and D)
F) A) and C)

Question 14

An increase in the government's budget surplus means

Accepted Answer

A)   public saving is greater than $0 and increasing.
B)   public saving is greater than $0 and decreasing.
C)   public saving is less than $0 and increasing.
D)   public saving is less than $0 and decreasing.E) B) and C)
F) B) and D)

Question 15

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A)   higher interest rates and greater investment.
B)   higher interest rates and less investment.
C)   lower interest rates and greater investment.
D)   lower interest rate and less investment.E) A) and D)
F) B) and C)

Question 16

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Accepted Answer

A saver earns more than he spe...

Question 17

Borrowers can and sometimes do)  default on their loans when

Accepted Answer

A)   the dividend yield on their shares of stock reaches zero.
B)   they convert their bonds into perpetuities.
C)   they declare bankruptcy.
D)   they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.E) B) and D)
F) C) and D)

Question 18

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Accepted Answer

A)   the inflation rate.
B)   gross domestic product.
C)   the real interest rate.
D)   the nominal interest rate.E) B) and C)
F) C) and D) C

Question 19

Which of the following involves financial intermediation?

Accepted Answer

A)   a bank makes a loan
B)   a household buys stock issued by a corporation
C)   a foreign government purchases U.S. government bonds
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 20

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Exam 18: Saving, Investment, and the Financial System

Long-term bonds are

Correct Answer
verified

Mutual funds

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
D

In a closed economy, public saving is the amount of

Correct Answer
verified
C

An increase in the quantity of loanable funds traded means that

Correct Answer
verified

Public saving is equal to national saving minus private saving.

Correct Answer
verified

If Huedepool Beer runs into financial difficulty, the stockholders as

Correct Answer
verified

Correct Answer
verified
The earnings per share is $45 million - ...
View Answer

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401k) and 403b) tax- deferred retirement accounts?

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, private saving amounts to

Correct Answer
verified

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

Correct Answer
verified

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Correct Answer
verified

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Correct Answer
verified

An increase in the government's budget surplus means

Correct Answer
verified

If a reform of the tax laws encourages greater saving, the result would be

Correct Answer
verified

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Correct Answer
verified
A saver earns more than he spe...
View Answer

Borrowers can and sometimes do) default on their loans when

Correct Answer
verified

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct Answer
verified
C

Which of the following involves financial intermediation?

Correct Answer
verified

What are the basic differences between bonds and stocks?

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

Exam 18: Saving, Investment, and the Financial System

Long-term bonds are

Correct AnswerverifiedShow Answer

Mutual funds

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 AnswerverifiedD

In a closed economy, public saving is the amount of

Correct AnswerverifiedC

An increase in the quantity of loanable funds traded means that

Correct AnswerverifiedShow Answer

Public saving is equal to national saving minus private saving.

Correct AnswerverifiedShow Answer

If Huedepool Beer runs into financial difficulty, the stockholders as

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe earnings per share is $45 million - ...View AnswerShow Answer

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401k) and 403b) tax- deferred retirement accounts?

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, private saving amounts to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Correct AnswerverifiedShow Answer

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Correct AnswerverifiedShow Answer

An increase in the government's budget surplus means

Correct AnswerverifiedShow Answer

If a reform of the tax laws encourages greater saving, the result would be

Correct AnswerverifiedShow Answer

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Correct AnswerverifiedA saver earns more than he spe...View AnswerShow Answer

Borrowers can and sometimes do) default on their loans when

Correct AnswerverifiedShow Answer

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct AnswerverifiedC

Which of the following involves financial intermediation?

Correct AnswerverifiedShow Answer

What are the basic differences between bonds and stocks?

Correct AnswerverifiedA bond is a certificate of indebtedness ...View AnswerShow Answer

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D

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C

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The earnings per share is $45 million - ...
View Answer

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A saver earns more than he spe...
View Answer

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C

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A bond is a certificate of indebtedness ...
View Answer