Question 1

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 1 to D2 is called A) an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. B) an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. C) a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. D) a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 13-3. A shift of the demand curve from D1 to D2 is called

Accepted Answer

A)  an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend.
B)  an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments.
C)  a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend.
D)  a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments.E) All of the above
F) A) and D)

Question 2

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Accepted Answer

A)  supply of loanable funds to the right, causing interest rates to fall.
B)  supply of loanable funds to the left, causing interest rates to rise.
C)  demand for loanable funds to the right, causing interest rates to rise.
D)  demand for loanable funds to the left, causing interest rates to fall.E) B) and D)
F) A) and B)

Question 3

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Accepted Answer

A)  lower interest rates and investment in 2011 than in 2010.
B)  lower interest rates and greater investment in 2011 than in 2010.
C)  higher interest rates and greater investment in 2011 than in 2010.
D)  higher interest rates and lower investment in 2011 than in 2010.E) B) and C)
F) All of the above

Question 4

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

Accepted Answer

A)  7 percent.
B)  3 percent.
C)  2.5 percent.
D)  .4 percent.E) A) and B)
F) A) and C)

Question 5

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)  the government buys goods from another country
B)  someone buys stock in an American company
C)  a firm increases its capital stock
D)  All of the above are correct.E) All of the above
F) A) and B)

Question 6

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?

Accepted Answer

A)  The 6 percent bond is less risky than the 3 percent bond.
B)  The 6 percent bond is a U.S. government bond, and the 3 percent bond is a junk bond.
C)  The 6 percent bond has a longer term than the 3 percent bond.
D)  The 6 percent bond is a municipal bond, and the 3 percent bond is a U.S. government bond.E) B) and D)
F) A) and B)

Question 7

As real interest rates fall, firms desire to

Accepted Answer

A)  buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
B)  buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
C)  buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
D)  buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.E) B) and D)
F) A) and D)

Question 8

It is claimed that mutual funds have two advantages. The first is that mutual funds allow people with small amounts of money to diversify. The second is that mutual funds provide the skills of professional money managers who buy stocks they believe will be the most profitable and thereby increase the return that mutual fund depositors earn on their savings.

Accepted Answer

A)  Economists strongly agree with both claims.
B)  Economists are skeptical of both claims.
C)  Economists are skeptical of the first claim, but strongly agree with the second.
D)  Economists strongly agree with the first claim, but are skeptical of the second.E) All of the above
F) None of the above

Question 9

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Accepted Answer

A)  both the government debt and interest rates increased between 2010 and 2011.
B)  both the government debt and interest rates decreased between 2010 and 2011.
C)  the government debt increased and interest rates decreased between 2010 and 2011.
D)  the government debt decreased and interest rates increased between 2010 and 2011.E) B) and C)
F) A) and D)

Question 10

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)  pays continuously compounded interest.
B)  pays interest only when it matures.
C)  never matures.
D)  will be used to purchase another bond when it matures unless the owner specifies otherwise.E) B) and D)
F) All of the above

Question 11

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

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange.
B)  Most buyers of stocks and bonds prefer those issued by large and familiar companies.
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors.
D)  None of the above is correct.E) None of the above
F) B) and C)

Question 13

In the small closed economy of San Lucretia, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 70 billion denars, government purchases of goods and services were 80 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lucretia?

Accepted Answer

A)  270 billion denars, 50 billion denars
B)  260 billion denars, 60 billion denars
C)  250 billion denars, 70 billion denars
D)  None of the above is correct.E) A) and B)
F) A) and C)

Question 14

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

Accepted Answer

A)  Each one of these is equal to national saving.
B)  Each one of these is equal to public saving.
C)  The first of these is private saving; the second one is public saving.
D)  The first of these is public saving; the second one is private saving.E) A) and D)
F) C) and D)

Question 15

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Accepted Answer

A)  raise the demand for existing shares of the stock, causing the price to rise.
B)  decrease the demand for existing shares of the stock, causing the price to fall.
C)  raise the supply of the existing shares of stock, causing the price to rise.
D)  raise the supply of the existing shares of stock, causing the price to fall.E) A) and B)
F) A) and C)

Question 16

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

Question 17

In a closed economy, national saving is

Accepted Answer

A)  usually greater than investment.
B)  equal to investment.
C)  usually less than investment because of the leakage of taxes.
D)  always less than investment.E) None of the above
F) A) and C)

Question 18

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 19

A high price-earnings ratio for a stock 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 20

Which of the following statements is correct?

Accepted Answer

A)  A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories.
B)  On average, indexed funds outperform managed funds.
C)  Unlike corporate bonds and stocks, checking accounts are a store of value.
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers.E) B) and C)
F) None of the above

Exam 13: Saving, Investment, and the Financial System

Which of the following would be included as investment in the GDP accounts?

Correct Answer
verified

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

Correct Answer
verified

As real interest rates fall, firms desire to

Correct Answer
verified

The primary advantage of mutual funds is that they

Correct Answer
verified

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

A high price-earnings ratio for a stock indicates that either the stock is

Correct Answer
verified

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Correct Answer
verified

Correct Answer
verified

In a closed economy, national saving is

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Correct Answer
verified

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Correct Answer
verified

A perpetuity is distinguished from other bonds in that it

Correct Answer
verified

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

Correct Answer
verified

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. A shift of the demand curve from D₁ to D₂ is called

Correct Answer
verified

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Correct Answer
verified

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price-earnings ratio is 15.

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

Which of the following would be included as investment in the GDP accounts?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

As real interest rates fall, firms desire to

Correct AnswerverifiedShow Answer

The primary advantage of mutual funds is that they

Correct AnswerverifiedShow Answer

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following is most likely?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A high price-earnings ratio for a stock indicates that either the stock is

Correct AnswerverifiedShow Answer

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a closed economy, national saving is

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Correct AnswerverifiedShow Answer

A perpetuity is distinguished from other bonds in that it

Correct AnswerverifiedShow Answer

Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. A shift of the demand curve from D1 to D2 is called

Correct AnswerverifiedShow Answer

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the

Correct AnswerverifiedShow Answer

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price-earnings ratio is 15.

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

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. A shift of the demand curve from D₁ to D₂ is called

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified