Question 1

Which of the following is not a characteristic of a bond?

Accepted Answer

A)   its tax treatment
B)   its credit risk
C)   its term
D)   its dividend yieldE) B) and D)
F) B) and C)

Question 2

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Accepted Answer

A)   The interest rate would decrease.
B)   Investment would decrease.
C)   The standard of living would eventually rise.
D)   The supply of loanable funds would shift right.E) B) and C)
F) B) and D)

Question 3

If Congress instituted an investment tax credit

Accepted Answer

A)   it would make buying bonds more desirable, so the demand for loanable funds would shift.
B)   it would make buying capital goods more desirable, so the demand for loanable funds would shift.
C)   it would make buying bonds more desirable, so the supply of loanable funds would shift.
D)   it would make buying capital goods more desirable, so the supply of loanable funds would shift.E) A) and B)
F) A) and C)

Question 4

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 5

Crowding out occurs when investment declines because

Accepted Answer

A)   a budget deficit makes interest rates rise.
B)   a budget deficit makes interest rates fall.
C)   a budget surplus makes interest rates rise.
D)   a budget surplus makes interest rates fall.E) All of the above
F) A) and B)

Question 6

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future.
C)   Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 7

Compared to bondholders, stockholders

Accepted Answer

A)   face higher risk and have the potential for higher returns.
B)   face higher risk but receive a fixed payment.
C)   face lower risk and have the potential for higher returns.
D)   face lower risk but receive a fixed payment.E) C) and D)
F) B) and D)

Question 8

In addition to

Accepted Answer

A)   performing financial intermediation, banks are important in that they help create a medium of exchange.
B)   serving as financial markets, mutual funds are important in that they help create a store of value.
C)   serving as stores of value, stocks and bonds also serve as media of exchange.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 9

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)   there is a surplus and the interest rate is above the equilibrium level.
B)   there is a surplus and the interest rate is below the equilibrium level.
C)   there is a shortage and the interest rate is above the equilibrium level.
D)   there is a shortage and the interest rate is below the equilibrium level.E) None of the above
F) All of the above

Question 10

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

Accepted Answer

A)   the level of public saving.
B)   the level of national saving.
C)   decisions made by people who have extra income they want to save and lend out.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 11

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)   there is a surplus so interest rates will rise.
B)   there is a surplus so interest rates will fall.
C)   there is a shortage so interest rates will rise.
D)   there is a shortage so interest rates will fall.E) None of the above
F) A) and B)

Question 12

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 C)
F) B) and C)

Question 13

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Accepted Answer

the intere...

Question 14

The primary economic function of the financial system is to

Accepted Answer

A)   keep interest rates low.
B)   provide expert advice to savers and investors.
C)   match one person's consumption expenditures with another person's capital expenditures.
D)   match one person's saving with another person's investment.E) A) and D)
F) A) and B)

Question 15

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

Accepted Answer

A)   Other things equal, the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds.
B)   An ABC Corporation bond must have a longer term than an XYZ Corporation.
C)   XYZ Corporation bonds carry less default risk than do ABC Corporation bonds.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 16

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Accepted Answer

A)   $0.25 and the price-earnings ratio is 5.
B)   $.25 and the price-earnings ratio is 6.7.
C)   $1.25 and the price-earnings ratio is 5.
D)   $1.25 and the price-earnings ratio is 6.7.E) None of the above
F) A) and D)

Question 17

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

Question 18

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A)   a movement from Point A to Point C
B)   a movement from Point B to Point A
C)   a movement from Point B to Point F
D)   a movement from Point C to Point BE) B) and D)
F) B) and C)

Question 19

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point B to Point A
C)   a movement from Point A to Point F
D)   a movement from Point B to Point CE) None of the above
F) A) and B)

Question 20

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

The real interest rate is the

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Which of the following is not a characteristic of a bond?

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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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If Congress instituted an investment tax credit

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Which of the following statements is correct?

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In addition to

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Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

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Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

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Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct AnswerverifiedShow Answer

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Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

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All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

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Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

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If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

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Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

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Crowding out occurs when investment declines because

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If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

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The primary economic function of the financial system is to

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If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Correct Answerverifiedthe intere...View AnswerShow Answer

Compared to bondholders, stockholders

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the intere...
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