Question 1

The real interest rate is the

Accepted Answer

A)   interest rate corrected for inflation.
B)   interest rate as usually reported by banks.
C)   difference between the interest rate charged by banks on the loans they make and the interest rate paid by banks to their depositors.
D)   difference between the average dividend yield on stocks and the average interest rate on bonds.E) A) and B)
F) A) and C)

Question 2

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A)   "Buy low­risk bonds."
B)   "Use a medium of exchange."
C)   "Diversify."
D)   "Intermediate."E) C) and D)
F) All of the above

Question 3

If Congress increased the tax rate on interest income, investment

Accepted Answer

A)   would increase and saving would decrease.
B)   would decrease and saving would increase.
C)   and saving would increase.
D)   and saving would decrease.E) A) and C)
F) B) and D)

Question 4

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is correct?

Accepted Answer

A)   As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate.
B)   The interest rate that is usually reported is the nominal interest rate.
C)   If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 6

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Accepted Answer

A)   breach.
B)   default.
C)   risk.
D)   term failure.E) C) and D)
F) None of the above

Question 7

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?

Accepted Answer

A)   the supply of loanable funds shifted right.
B)   the supply of loanable funds shifted left.
C)   the demand for loanable funds shifted right.
D)   the demand for loanable funds shifted left.E) None of the above
F) A) and C)

Question 8

Which of the following statements is correct?

Accepted Answer

A)   A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities.
B)   On average, managed funds outperform indexed funds.
C)   Unlike corporate bonds and stocks, checking accounts are a medium of exchange.
D)   A mutual fund is a financial market.E) B) and D)
F) A) and B)

Question 9

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A)   the rich to the poor.
B)   financial institutions to business firms and government.
C)   households to financial institutions.
D)   savers to borrowers.E) A) and D)
F) A) and B)

Question 10

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Accepted Answer

A) True 
 B)False

Question 11

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. This economy's government is running a

Accepted Answer

A)   budget surplus of $3,000.
B)   budget surplus of $12,000.
C)   budget deficit of $3,000.
D)   budget deficit of $12,000.E) All of the above
F) B) and C)

Question 12

The primary advantage of mutual funds is that they

Accepted Answer

A)   always make a return that "beats the market."
B)   allow people with small amounts of money to diversify.
C)   provide customers with a medium of exchange.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 13

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Accepted Answer

A)   the equilibrium interest rate falls
B)   the equilibrium interest rate rises
C)   the equilibrium quantity of loanable funds rises
D)   the equilibrium quantity of loanable funds fallsE) All of the above
F) None of the above

Question 14

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) A) and C)

Question 15

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following lists correctly identifies the four expenditure categories of GDP?

Accepted Answer

A)   consumption, government purchases, investment, net-exports
B)   consumption, investment, depreciation, net-exports
C)   consumption, saving, investment, depreciation,
D)   consumption, government purchases, investment, savingsE) None of the above
F) A) and D)

Question 17

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 18

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

Accepted Answer

A)   The interest rate will increase; investment may increase or decrease.
B)   The interest rate will decrease; investment may increase or decrease.
C)   The interest rate may increase or decrease; investment will decrease.
D)   The interest rate may increase or decrease; investment will increase.E) None of the above
F) A) and D)

Question 19

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

Accepted Answer

A)   There would be no change in the interest rate or saving.
B)   The interest rate would decrease and saving would increase.
C)   The interest rate would increase and saving would decrease.
D)   None of the above is correct.E) All of the above
F) A) and B)

Question 20

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Correct AnswerverifiedShow Answer

If Congress increased the tax rate on interest income, investment

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?

Correct AnswerverifiedShow Answer

Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?

Correct AnswerverifiedShow Answer

In a closed economy, investment must be equal to private saving.

Correct AnswerverifiedShow Answer

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Correct AnswerverifiedShow Answer

The U.S. government increases its budget deficit, but at the same time Congress eliminates an investment tax credit. Which of the following is correct?

Correct AnswerverifiedShow Answer

Corporations receive no proceeds from the resale of their stock.

Correct AnswerverifiedShow Answer

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Correct AnswerverifiedShow Answer

If the supply of and demand for loanable funds both shift left, which of the following necessarily happens?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Correct AnswerverifiedShow Answer

The primary advantage of mutual funds is that they

Correct AnswerverifiedShow Answer

At the broadest level, the financial system moves the economy's scarce resources from

Correct AnswerverifiedShow Answer

The real interest rate is the

Correct AnswerverifiedShow Answer

Which of the following lists correctly identifies the four expenditure categories of GDP?

Correct AnswerverifiedShow Answer

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

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. This economy's government is running a

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified