Question 1

When is a budget surplus created?

Accepted Answer

A)   when the government sells more bonds than it buys back
B)   when the government spends more than it receives in tax revenue
C)   when private savings are greater than zero
D)   when the government spends less than the tax revenueE) B) and D)
F) None of the above

Question 2

Ian has the choice of two bonds,one that pays 4 percent interest and one that pays 86 percent interest.Which of the following situations is most likely?

Accepted Answer

A)   The 8 percent bond is less risky than the 4 percent bond.
B)   The 8 percent bond is a Canadian government bond,and the 4 percent bond is a junk bond.
C)   The 8 percent bond has a longer term than the 4 percent bond.
D)   The 8 percent bond is a Canadian government bond,and the 4 percent bond is a provincial bond.E) A) and B)
F) None of the above

Question 3

The country of Aquilonia does not trade with any other country.Its GDP is $30 billion.Its government purchases $5 billion worth of goods and services each year,collects $7 billion in taxes,and provides $3 billion in transfer payments to households.Private saving in Aquilonia is $5 billion.What is consumption?

Accepted Answer

A)   $10 billion
B)   $13 billion
C)   $18 billion
D)   $21 billionE) B) and D)
F) A) and C)

Question 4

How does the supply and demand for loanable funds model reflect an increase in the goods and services tax rate?

Accepted Answer

A)   The supply curve shifts to the left,while the demand curve remains unchanged.
B)   The supply curve shifts to the right,while the demand curve remains unchanged.
C)   The supply curve remains unchanged,while the demand curve shifts to the left.
D)   The supply curve remains unchanged,while the demand curve shifts to the right.E) C) and D)
F) All of the above

Question 5

Which statement best defines a closed economy?

Accepted Answer

A)   It does not trade with other economies.
B)   It does not have free markets.
C)   It does not allow immigration.
D)   It does not have freedom of entry and exit.E) A) and B)
F) A) and C)

Question 6

If Parliament instituted an investment tax credit,what would most likely happen to the interest rate and saving?

Accepted Answer

A)   The interest rate would rise,and saving would rise.
B)   The interest rate would fall,and saving would fall.
C)   The interest rate would rise,and saving would fall.
D)   The interest rate would fall,and saving would rise.E) None of the above
F) B) and C)

Question 7

PacknCamp Corporation has a price of $40,has issued 2 million shares,has increased its cumulated retained earnings by $2 million,and has a dividend yield of 2 percent.What is the price / earnings ratio of PacknCamp?

Accepted Answer

A)   40,which is high compared to historical standards of the market
B)   40,which is low compared to historical standards of the market
C)   20,which is low compared to historical standards of the market
D)   20,which is high compared to historical standards of the marketE) B) and D)
F) None of the above

Question 8

Table 8-1
The following table shows stock prices and volumes for a few hypothetical companies. 
-Refer to Table 8-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of company B's stock traded that day?

Accepted Answer

A)   $121,712
B)   $12,171,200
C)   $121,712,000
D)   $1,217,120,000E) A) and B)
F) A) and C)

Question 9

What is a characteristic of the bond market?

Accepted Answer

A)   Some bonds have terms as short as a few months.
B)   Because they are risky,bonds pay a low rate of interest.
C)   Corporations buy bonds to raise funds.
D)   Bonds are rarely used as financial instruments.E) None of the above
F) A) and D)

Question 10

In 1995,MP Bill Gatt proposed that the income tax be replaced with a consumption tax.If his program had been passed,how would the equilibrium interest rate and the quantity of loanable funds have been affected?

Accepted Answer

A)   The equilibrium interest rate and quantity of loanable funds would be lower.
B)   The equilibrium interest rate and quantity of loanable funds would be higher.
C)   The equilibrium interest rate would be higher,and the equilibrium quantity of loanable funds would be lower.
D)   The equilibrium interest rate would be lower,and the equilibrium quantity of loanable funds would be higher.E) All of the above
F) A) and C)

Question 11

What does a general,persistent decline in stock prices signal about an economy?

Accepted Answer

A)   that the economy is about to enter a boom period because people will be able to buy stock for less money
B)   that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits
C)   that the economy is about to enter a boom because people expect prices of stock to rise
D)   that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the pastE) C) and D)
F) None of the above

Question 12

Suppose that you are a broker and people tell you the following about themselves.What sort of bond would you recommend to each? Defend your choices.
a."I am in a high federal income-tax bracket and I don't want to take very much risk."
b."I want a high return and I am willing to take whatever risk necessary to get it."
c."I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a.A federal bond,because generally they ...

Question 13

Which of the following terms refers to the profits NOT paid out to shareholders?

Accepted Answer

A)   retained earnings
B)   dividends
C)   revenue
D)   costsE) B) and C)
F) A) and B)

Question 14

What has the typical price / earnings ratio been historically?

Accepted Answer

A)   about 5
B)   about 10
C)   about 15
D)   about 20E) A) and D)
F) All of the above

Question 15

Assuming that other things remain the same,what effect does a government budget deficit have on saving?

Accepted Answer

A)   It increases both private and national saving.
B)   It increases public saving but reduces national saving.
C)   It reduces both public and national saving.
D)   It reduces private saving but increases national saving.E) All of the above
F) B) and C)

Question 16

How does the supply of loanable funds curve slope?

Accepted Answer

A)   upward because an increase in the interest rate induces people to save more
B)   downward because an increase in the interest rate induces people to save less
C)   downward because an increase in the interest rate induces people to invest less
D)   upward because an increase in the interest rate induces people to invest moreE) None of the above
F) A) and B)

Question 17

Which bond is most likely to default?

Accepted Answer

A)   a junk bond
B)   a municipal bond
C)   a federal government bond
D)   a corporate bond issued by Bell CanadaE) None of the above
F) B) and C)

Question 18

Which term refers to the sale of stocks and bonds to raise money?

Accepted Answer

A)   debt finance
B)   debt-equity finance
C)   debt finance for stocks,and equity finance for bonds
D)   equity finance for stocks,and debt finance for bondsE) B) and C)
F) A) and B)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Public saving is T - G,while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, investment, and the Financial System

Ian has the choice of two bonds,one that pays 4 percent interest and one that pays 86 percent interest.Which of the following situations is most likely?

Correct Answer
verified

Assuming that other things remain the same,what effect does a government budget deficit have on saving?

Correct Answer
verified

Public saving is T - G,while private saving is Y - T - C.

Correct Answer
verified

In 1995,MP Bill Gatt proposed that the income tax be replaced with a consumption tax.If his program had been passed,how would the equilibrium interest rate and the quantity of loanable funds have been affected?

Correct Answer
verified

Which of the following terms refers to the profits NOT paid out to shareholders?

Correct Answer
verified

What is a characteristic of the bond market?

Correct Answer
verified

Which bond is most likely to default?

Correct Answer
verified

Which term refers to the sale of stocks and bonds to raise money?

Correct Answer
verified

Correct Answer
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How does the supply of loanable funds curve slope?

Correct Answer
verified

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

Correct Answer
verified

Table 8-1 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of company B's stock traded that day?

Correct Answer
verified

Which statement best defines a closed economy?

Correct Answer
verified

If Parliament instituted an investment tax credit,what would most likely happen to the interest rate and saving?

Correct Answer
verified

When is a budget surplus created?

Correct Answer
verified

PacknCamp Corporation has a price of $40,has issued 2 million shares,has increased its cumulated retained earnings by $2 million,and has a dividend yield of 2 percent.What is the price / earnings ratio of PacknCamp?

Correct Answer
verified

Correct Answer
verified
a.A federal bond,because generally they ...
View Answer

What does a general,persistent decline in stock prices signal about an economy?

Correct Answer
verified

How does the supply and demand for loanable funds model reflect an increase in the goods and services tax rate?

Correct Answer
verified

What has the typical price / earnings ratio been historically?

Correct Answer
verified

Exam 8: Saving, investment, and the Financial System

Ian has the choice of two bonds,one that pays 4 percent interest and one that pays 86 percent interest.Which of the following situations is most likely?

Correct AnswerverifiedShow Answer

Assuming that other things remain the same,what effect does a government budget deficit have on saving?

Correct AnswerverifiedShow Answer

Public saving is T - G,while private saving is Y - T - C.

Correct AnswerverifiedShow Answer

In 1995,MP Bill Gatt proposed that the income tax be replaced with a consumption tax.If his program had been passed,how would the equilibrium interest rate and the quantity of loanable funds have been affected?

Correct AnswerverifiedShow Answer

Which of the following terms refers to the profits NOT paid out to shareholders?

Correct AnswerverifiedShow Answer

What is a characteristic of the bond market?

Correct AnswerverifiedShow Answer

Which bond is most likely to default?

Correct AnswerverifiedShow Answer

Which term refers to the sale of stocks and bonds to raise money?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

How does the supply of loanable funds curve slope?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Table 8-1 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of company B's stock traded that day?

Correct AnswerverifiedShow Answer

Which statement best defines a closed economy?

Correct AnswerverifiedShow Answer

If Parliament instituted an investment tax credit,what would most likely happen to the interest rate and saving?

Correct AnswerverifiedShow Answer

When is a budget surplus created?

Correct AnswerverifiedShow Answer

PacknCamp Corporation has a price of $40,has issued 2 million shares,has increased its cumulated retained earnings by $2 million,and has a dividend yield of 2 percent.What is the price / earnings ratio of PacknCamp?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.A federal bond,because generally they ...View AnswerShow Answer

What does a general,persistent decline in stock prices signal about an economy?

Correct AnswerverifiedShow Answer

How does the supply and demand for loanable funds model reflect an increase in the goods and services tax rate?

Correct AnswerverifiedShow Answer

What has the typical price / earnings ratio been historically?

Correct AnswerverifiedShow Answer

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Correct Answer
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a.A federal bond,because generally they ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
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