Question 1

As real interest rates fall, firms desire to

Accepted Answer

A)   buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
B)   buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
C)   buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
D)   buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.E) B) and C)
F) A) and D)

Question 2

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

Accepted Answer

A) True 
 B)False

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

Question 4

A stock's dividend yield is the

Accepted Answer

A)   dividend as a percentage of the price per share.
B)   stock price as a percentage of the dividend.
C)   dividend as a percentage of the retained earnings per share.
D)   retained earnings per share as the percentage of the dividend.E) All of the above
F) None of the above

Question 5

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Accepted Answer

national saving/inve...

Question 6

A larger budget surplus

Accepted Answer

A)   raises the interest rate and investment.
B)   reduces the interest rate and investment.
C)   raises the interest rate and reduces investment.
D)   reduces the interest rate and raises investment.E) A) and C)
F) A) and B)

Question 7

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

Question 8

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)   In response to tax reform, firms are encouraged to invest more than they previously invested.
B)   In response to tax reform, households are encouraged to save more than they previously saved.
C)   Government goes from running a balanced budget to running a budget deficit.
D)   Any of the above events would shift the supply curve from S1 to S2.E) A) and C)
F) None of the above

Question 9

Compared to stocks, bonds offer the holder

Accepted Answer

A)   lower risk and lower potential return.
B)   lower risk and higher potential return.
C)   higher risk and lower potential return.
D)   higher risk and higher potential return.E) B) and D)
F) B) and C)

Question 10

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. 
-Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Accepted Answer

A)   the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% point 
D)  .
B)   the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% point 
C)  .
C)   the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% point 
B)  .
D)   the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% point 
E)  .E) None of the above
F) C) and D)

Question 11

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

Question 12

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

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

Question 13

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)   this year and last year
B)   this year but not last year
C)   last year but not this year
D)   neither this year nor last yearE) A) and B)
F) B) and C)

Question 14

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 D)
F) None of the above

Question 15

A corporation's earnings are

Accepted Answer

A)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.
B)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
C)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
D)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.E) A) and B)
F) C) and D)

Question 16

Other things the same, an increase in the interest rate

Accepted Answer

A)   would shift the demand for loanable funds to the right.
B)   would shift the demand for loanable funds to the left.
C)   would increase the quantity of loanable funds demanded.
D)   would decrease the quantity of loanable funds demanded.E) A) and D)
F) B) and D)

Question 17

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Accepted Answer

A)   large decline in some asset prices → insolvencies at financial institutions → decline in confidence in financial institutions
B)   insolvencies at financial institutions → decline in confidence in financial institutions → large decline in some asset prices
C)   insolvencies at financial institutions → economic downturn → credit crunch
D)   insolvencies at financial institutions → credit crunch → economic downturnE) A) and B)
F) A) and C)

Question 18

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. 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 B)
F) C) and D)

Question 19

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)   A share of stock issued by Apple.
B)   A corporate bond issued by Apple.
C)   A junk bond.
D)   A U.S. government bond.E) B) and D)
F) A) and B)

Question 20

A closed economy does not engage in international trade, therefore

Accepted Answer

A)   national saving is less than investment S 
B)   net exports NX)  are zero.
C)   Y - C - G > I.
D)   national saving is zero.E) A) and D)
F) None of the above

Exam 18: Saving, Investment, and the Financial System

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Correct Answer
verified

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Correct Answer
verified

A stock's dividend yield is the

Correct Answer
verified

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Correct Answer
verified
national saving/inve...
View Answer

A larger budget surplus

Correct Answer
verified

Compared to stocks, bonds offer the holder

Correct Answer
verified

A closed economy does not engage in international trade, therefore

Correct Answer
verified

Other things the same, an increase in the interest rate

Correct Answer
verified

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?

Correct Answer
verified

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Correct Answer
verified

A corporation's earnings are

Correct Answer
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Which of the following is a certificate of indebtedness?

Correct Answer
verified

As real interest rates fall, firms desire to

Correct Answer
verified

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?

Correct Answer
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Correct Answer
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Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. 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 Answer
verified

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

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

Correct Answer
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Which bond is likely to have higher interest rate due to a higher default risk?

Correct Answer
verified

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Correct Answer
verified

Exam 18: Saving, Investment, and the Financial System

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Correct AnswerverifiedShow Answer

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Correct AnswerverifiedShow Answer

A stock's dividend yield is the

Correct AnswerverifiedShow Answer

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

Correct Answerverifiednational saving/inve...View AnswerShow Answer

A larger budget surplus

Correct AnswerverifiedShow Answer

Compared to stocks, bonds offer the holder

Correct AnswerverifiedShow Answer

A closed economy does not engage in international trade, therefore

Correct AnswerverifiedShow Answer

Other things the same, an increase in the interest rate

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Correct AnswerverifiedShow Answer

A corporation's earnings are

Correct AnswerverifiedShow Answer

Which of the following is a certificate of indebtedness?

Correct AnswerverifiedShow Answer

As real interest rates fall, firms desire to

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. 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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which bond is likely to have higher interest rate due to a higher default risk?

Correct AnswerverifiedShow Answer

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Correct AnswerverifiedShow Answer

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national saving/inve...
View Answer

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