Question 1

Which of the following could explain a decrease in the interest rate and 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) C) and D)

Question 2

Suppose a country has a consumption tax that is similar to a state sales tax.If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings,what happens?

Accepted Answer

A)  There is no change in the interest rate or saving.
B)  The interest rate decreases and saving increases.
C)  The interest rate increases and saving decreases.
D)  None of the above is correct.E) B) and D)
F) B) and C)

Question 3

Which of the following bond buyers did not buy the bond that best met their objective?

Accepted Answer

A)  Mia wanted a bond with a high interest rate and was willing to take a lot of risk.She purchased a junk bond.
B)  Anna wanted a bond that would let her best avoid federal income taxes.She purchased a municipal bond.
C)  Bill wanted to purchase a bond that was unlikely to have default.He purchased a bond that Standards and Poor's rated a low credit risk.
D)  Toby held long-term bonds rather than short-term ones to avoid risk.E) B) and C)
F) A) and B)

Question 4

An increase 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.E) A) and B)
F) A) and C)

Question 5

Use the following table to answer the following questions.
Table 26-2
 
-Refer to Table 26-2.Which company had the highest earnings per share?

Accepted Answer

A)  Boeing Co.
B)  Eli Lilly and Co.
C)  H.J.Heinz and Co.
D)  Kellog Co.E) None of the above
F) C) and D) C

Question 6

If Proctor and Gamble sells a bond it is

Accepted Answer

A)  borrowing directly from the public.
B)  borrowing indirectly from the public.
C)  lending directly to the public.
D)  lending indirectly to the public.E) A) and D)
F) C) and D)

Question 7

When the government runs a budget deficit,

Accepted Answer

A)  interest rates are lower than they would be if the budget were balanced.
B)  national saving is higher than it would be if the budget were balanced.
C)  investment is lower than it would be if the budget were balanced.
D)  All of the above are correct.E) A) and C)
F) B) and D) C

Question 8

Suppose the economy is closed and consumption is 6,500 taxes are 1,500 and government purchases are 2,000.If national savings are 1,000 and the economy is closed then,what is GDP?

Accepted Answer

A)  9,500
B)  10,000
C)  10,500
D)  None of the above is correct.E) All of the above
F) B) and C)

Question 9

If there is a shortage of loanable funds,then

Accepted Answer

A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise.
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall.
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise.
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall.E) A) and B)
F) A) and C)

Question 10

A checking deposit functions as

Accepted Answer

A)  a medium of exchange and a store of value.
B)  a medium of exchange, but not a store of value.
C)  a store of value, but not a medium of exchange.
D)  neither a medium of exchange nor a store of value.E) A) and B)
F) A) and C)

Question 11

Use the following table to answer the following questions.
Table 26-2
 
-Refer to Table 26-2.Which company had the PE ratio closest to what is historically typical?

Accepted Answer

A)  Boeing Co.
B)  Eli Lilly and Co.
C)  H.J.Heinz and Co.
D)  Kellog Co.E) A) and B)
F) C) and D)

Question 12

The identity that shows that GDP is both total income and total expenditure is represented by

Accepted Answer

A)  GDP = Y.
B)  Y = DI + T + NX.
C)  GDP = GNP - NX.
D)  Y = C + I + G + NX.E) None of the above
F) A) and D)

Question 13

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we'd expect this reduction in the budget deficit to have

Accepted Answer

A)  raised interest rates and investment.
B)  raised interest rates and reduced investment.
C)  reduced interest rates and raised investment.
D)  reduced interest rates and investment.E) B) and C)
F) None of the above

Question 14

Suppose that government expenditures on goods and services and net taxes both decrease,but that expenditures fall by more than net taxes.The effects of these changes on the budget deficit make

Accepted Answer

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

Question 15

Other things the same,which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)  a bond issued by a state with a very good credit rating
B)  a bond issued by the U.S.government
C)  a bond issued by a fairly new company doing genetic research
D)  a bond issued by NabiscoE) A) and B)
F) All of the above

Question 16

Suppose that in a closed economy GDP is $11 trillion,consumption is $7 trillion,taxes are $3 trillion and the government runs a surplus of $1 trillion.What are private saving and national saving?

Accepted Answer

A)  $4 trillion and $1 trillion
B)  $4 trillion and $5 trillion
C)  $1 trillion and $2 trillion
D)  $1 trillion and $1 trillionE) A) and B)
F) A) and C) C

Question 17

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

Question 18

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects.
B)  overvalued or people are relatively optimistic about the corporation's prospects.
C)  overvalued or people are relatively pessimistic about the corporation's prospects.
D)  undervalued or people are relatively pessimistic about the corporation's prospects.E) A) and B)
F) All of the above

Question 19

Managed funds

Accepted Answer

A)  typically have a higher rate of return and higher costs than index funds.
B)  typically have a higher rate of return and lower costs than index funds.
C)  typically have a lower rate of return and higher costs than index funds.
D)  typically have a lower rate of return and lower costs than index funds.E) C) and D)
F) None of the above

Question 20

Which of the following is not correct?

Accepted Answer

A)  American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan.
B)  Saving is an important long-run determinant of a nation's standard of living.
C)  A change in tax laws that encouraged greater saving would lower interest rates.
D)  Taxes on interest income can substantially decrease the future value of current saving.E) None of the above
F) A) and D)

Exam 26: Saving, investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Suppose a country has a consumption tax that is similar to a state sales tax.If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings,what happens?

Correct AnswerverifiedShow Answer

Which of the following bond buyers did not buy the bond that best met their objective?

Correct AnswerverifiedShow Answer

An increase in the budget deficit

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2.Which company had the highest earnings per share?

Correct AnswerverifiedC

If Proctor and Gamble sells a bond it is

Correct AnswerverifiedShow Answer

When the government runs a budget deficit,

Correct AnswerverifiedC

Suppose the economy is closed and consumption is 6,500 taxes are 1,500 and government purchases are 2,000.If national savings are 1,000 and the economy is closed then,what is GDP?

Correct AnswerverifiedShow Answer

If there is a shortage of loanable funds,then

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A checking deposit functions as

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2.Which company had the PE ratio closest to what is historically typical?

Correct AnswerverifiedShow Answer

The identity that shows that GDP is both total income and total expenditure is represented by

Correct AnswerverifiedShow Answer

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we'd expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

Suppose that government expenditures on goods and services and net taxes both decrease,but that expenditures fall by more than net taxes.The effects of these changes on the budget deficit make

Correct AnswerverifiedShow Answer

Other things the same,which bond would you expect to pay the lowest interest rate?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is $11 trillion,consumption is $7 trillion,taxes are $3 trillion and the government runs a surplus of $1 trillion.What are private saving and national saving?

Correct AnswerverifiedC

A dividend yield is the

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A low price-earnings ratio indicates that either the stock is

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Managed funds

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Which of the following is not correct?

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C

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C

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C

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