Question 1

A larger budget deficit

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 D)
F) A) and C)

Question 2

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Accepted Answer

A)   the fund's managers
B)   the fund's shareholders
C)   the federal government
D)   the corporations that originally issued the stocks and/or bonds held by the fundE) A) and D)
F) B) and C)

Question 3

Which of the following statements is correct?

Accepted Answer

A)   A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)   A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)   A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)   Expectations about the business cycle have no impact on stock prices.E) B) and D)
F) A) and B)

Question 4

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 5

The nominal interest rate is the

Accepted Answer

A)   interest rate corrected for inflation.
B)   interest rate as usually reported by banks.
C)   real rate of return to the lender.
D)   real cost of borrowing to the borrower.E) B) and C)
F) B) and D)

Question 6

According to the definitions of national saving and private saving,if Y,C,and G remained the same,an increase in taxes would

Accepted Answer

A)   raise both national saving and private saving.
B)   raise national saving and reduce private saving.
C)   leave national saving and private saving unchanged.
D)   leave national saving unchanged and reduce private saving.E) C) and D)
F) A) and B)

Question 7

To state that national saving is equal to investment,for a closed economy,is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 8

When opening a print shop you need to buy printers,computers,furniture,and similar items.Economists call these expenditures

Accepted Answer

A)   capital investment.
B)   investment in human capital.
C)   business consumption expenditures.
D)   personal saving.E) C) and D)
F) All of the above

Question 9

Long-term bonds are

Accepted Answer

A)   riskier than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
B)   riskier than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
C)   less risky than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
D)   less risky than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) None of the above
F) C) and D)

Question 10

In which case would people desire to borrow the most?

Accepted Answer

A)   the nominal interest rate is 8% and the inflation rate is 7%
B)   the nominal interest rate is 7% and the inflation rate is 5%
C)   the nominal interest rate is 6% and the inflation rate is 3%
D)   the nominal interest rate is 5% and the inflation rate is 1%E) None of the above
F) C) and D)

Question 11

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A)   The supply of loanable funds would shift right.
B)   The demand for loanable funds would shift right.
C)   The supply of loanable funds would shift left.
D)   The demand for loanable funds would shift left.E) All of the above
F) A) and B)

Question 12

If a firm sells a total of 100 shares of stock,then

Accepted Answer

A)   each share represents 1 percent of the firm's indebtedness.
B)   each share represents ownership of 1 percent of the firm.
C)   the firm is engaging in term finance.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 13

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

Question 14

When the government goes from running a balanced budget to running a budget surplus,

Accepted Answer

A)   national saving decreases,the interest rate rises,and the economy's long-run growth rate is likely to decrease.
B)   national saving increases,the interest rate falls,and the economy's long-run growth rate is likely to decrease.
C)   national saving decreases,the interest rate rises,and the economy's long-run growth rate is likely to increase.
D)   national saving increases,the interest rate falls,and the economy's long-run growth rate is likely to increase.E) A) and D)
F) B) and D)

Question 15

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) All of the above
F) A) and C)

Question 16

Table 13-1
 
-Refer to Table 13-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of Gillette stock traded that day?

Accepted Answer

A)   $912,840,000
B)   $91,284,000
C)   $9,128,400
D)   $912,840E) C) and D)
F) A) and B)

Question 17

Which of the following is true concerning interest rates on bonds?

Accepted Answer

A)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise.High default risk makes the interest rate on a bond higher than otherwise.
B)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise.High default risk makes the interest rate on a bond lower than otherwise.
C)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise.High default risk makes the interest rate on a bond higher than otherwise.
D)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise.High default risk makes the interest rate on a bond lower than otherwise.E) A) and B)
F) A) and C)

Question 18

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)   credit risk.
B)   interest risk.
C)   term risk.
D)   private risk.E) B) and D)
F) None of the above

Question 19

If a firm wants to borrow it can

Accepted Answer

A)   supply bonds by selling them.
B)   supply bonds by buying them.
C)   demand bonds by selling them.
D)   demand bonds by buying them.E) None of the above
F) C) and D)

Question 20

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

Exam 26: Saving,investment,and the Financial System

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

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The nominal interest rate is the

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Which of the following statements is correct?

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Managed funds

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Which of the following is true concerning interest rates on bonds?

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What would happen in the market for loanable funds if the government were to increase the tax on interest income?

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To state that national saving is equal to investment,for a closed economy,is to state an accounting identity.

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If a firm wants to borrow it can

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When the government goes from running a balanced budget to running a budget surplus,

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If a firm sells a total of 100 shares of stock,then

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When opening a print shop you need to buy printers,computers,furniture,and similar items.Economists call these expenditures

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According to the definitions of national saving and private saving,if Y,C,and G remained the same,an increase in taxes would

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Table 13-1 -Refer to Table 13-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of Gillette stock traded that day?

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In which case would people desire to borrow the most?

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The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

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A larger budget deficit

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The primary advantage of mutual funds is that they

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If there is surplus of loanable funds,then

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Long-term bonds are

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An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

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