Question 1

The sale of either stocks or bonds to raise money is known as equity finance.

Accepted Answer

A) True 
 B)False

Question 2

The purchase of a new house is the one form of

Accepted Answer

A)   investment that is financed by private saving rather than public saving.
B)   household spending that is not counted as part of investment in the national income accounts.
C)   household spending that is investment rather than consumption.
D)   household spending that does not contribute to GDP.E) A) and C)
F) None of the above

Question 3

Other things the same, a higher interest rate induces people to

Accepted Answer

A)   save more, so the supply of loanable funds slopes upward.
B)   save less, so the supply of loanable funds slopes downward.
C)   invest more, so the supply of loanable funds slopes upward.
D)   invest less, so the supply of loanable funds slopes downward.E) A) and D)
F) C) and D)

Question 4

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $5 million, of which it retained $1 million for future investments. The dividend yield on the stock is

Accepted Answer

A)   1 percent.
B)   2 percent.
C)   4 percent.
D)   5 percent.E) A) and B)
F) All of the above

Question 5

An increase in the budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 6

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Accepted Answer

A)   9.0 percent
B)   5 percent
C)   3.5 percent
D)   None of the above is correct.E) B) and D)
F) None of the above

Question 7

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Accepted Answer

A)   2.8 percent.
B)   2.0 percent.
C)   1.6 percent.
D)   0.4 percent.E) None of the above
F) All of the above

Question 8

The single most important piece of information about a stock is its

Accepted Answer

A)   term.
B)   dividend.
C)   daily volume.
D)   price.E) A) and B)
F) B) and C)

Question 9

Use the following table to answer the following questions.
Table 8-1
 
-Refer to Table 8-1. What was Hershey's earnings per share?

Accepted Answer

A)   $38
B)   $1.64
C)   $1.31
D)   $0.61E) A) and B)
F) A) and C)

Question 10

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Accepted Answer

A)   the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls.
B)   the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises.
C)   the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls.
D)   the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises.E) All of the above
F) A) and C)

Question 11

A budget deficit

Accepted Answer

A)   changes the supply of loanable funds.
B)   changes the demand for loanable funds.
C)   changes both the supply of and demand for loanable funds.
D)   does not influence the supply of or the demand for loanable funds.E) None of the above
F) B) and C)

Question 12

A checking deposit functions as

Accepted Answer

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

Question 13

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

Question 14

The ratio of debt to GDP in the United States

Accepted Answer

A)   tends to fall during wars.
B)   fell during the decade that began in 2000.
C)   fell during the late 1990s.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 15

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

Accepted Answer

A)   9,500
B)   10,000
C)   10,500
D)   11,000E) A) and B)
F) None of the above

Question 16

If there is surplus of loanable funds, then

Accepted Answer

A)   the supply for loanable funds shifts right and the demand shifts left.
B)   the supply for loanable funds shifts left and the demand shifts right.
C)   neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)   neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.E) A) and C)
F) A) and D)

Question 17

Banks

Accepted Answer

A)   play a role in creating an asset that people can use as a medium of exchange.
B)   are financial intermediaries, but mutual funds are not financial intermediaries.
C)   are financial markets, as are bond markets.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 18

Which of the following equations represents GDP for a closed economy?

Accepted Answer

A)   Y = C + I + G + T
B)   S = I - G
C)   I = Y - C + G
D)   Y = C + I + GE) B) and D)
F) B) and C)

Question 19

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False

Question 20

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) None of the above
F) A) and D)

Exam 8: Saving, Investment, and the Financial System

The sale of either stocks or bonds to raise money is known as equity finance.

Correct AnswerverifiedShow Answer

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Correct AnswerverifiedShow Answer

Lenders buy bonds and borrowers sell them.

Correct AnswerverifiedShow Answer

Borrowers can (and sometimes do) default on their loans when

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Which of the following equations represents GDP for a closed economy?

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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 $5 million, of which it retained $1 million for future investments. The dividend yield on the stock is

Correct AnswerverifiedShow Answer

When the government runs a budget deficit,

Correct AnswerverifiedShow Answer

The single most important piece of information about a stock is its

Correct AnswerverifiedShow Answer

A checking deposit functions as

Correct AnswerverifiedShow Answer

The purchase of a new house is the one form of

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Correct AnswerverifiedShow Answer

An increase in the budget deficit shifts the demand for loanable funds to the right.

Correct AnswerverifiedShow Answer

A budget deficit

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Other things the same, a higher interest rate induces people to

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Banks

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The ratio of debt to GDP in the United States

Correct AnswerverifiedShow Answer

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

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Use the following table to answer the following questions. Table 8-1 -Refer to Table 8-1. What was Hershey's earnings per share?

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If there is surplus of loanable funds, then

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Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Correct AnswerverifiedShow Answer

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