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In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then


A) the government has a budget surplus and investment is 1,000
B) the government has a budget surplus and investment is 2,000
C) the government has a budget deficit and investment is 1,000
D) the government has a budget deficit and investment is 2,000

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

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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.

A) True
B) False

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Financial intermediaries are


A) the same as financial markets.
B) individuals who make profits by buying a stock low and selling it high.
C) a more general name for financial assets such as stocks, bonds, and checking accounts.
D) financial institutions through which savers can indirectly provide funds to borrowers.

E) A) and B)
F) None of the above

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The supply of loanable funds would shift to the right if either


A) tax reforms encouraged greater saving or the budget deficit became smaller.
B) tax reforms encouraged greater saving or investment tax credits were increased.
C) the budget deficit became larger or investment tax credits were increased.
D) the budget deficit became larger or tax reforms discouraged saving.

E) All of the above
F) A) and B)

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Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. For this economy, GDP equals


A) $1,480.
B) $1,505.
C) $1,460
D) $1,455.

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

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and are the two most important financial intermediaries.

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Banks, Mut...

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Which of the following is not correct?


A) Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services.
B) In a closed economy net exports are zero.
C) National saving is the sum of private saving and public saving.
D) Purchases of capital goods are excluded from GDP.

E) A) and D)
F) A) and C)

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Which of the following statements about the term of a bond is correct?


A) Term refers to the various characteristics of a bond, including its interest rate and tax treatment.
B) The term of a bond is determined entirely by its credit risk.
C) The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond.
D) Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

E) A) and B)
F) All of the above

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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,


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

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An increase in the quantity of loanable funds traded means that


A) firms are borrowing less and investment decreases.
B) firms are borrowing less and investment increases.
C) firms are borrowing more and investment increases.
D) firms are borrowing more and investment decreases.

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

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Owners of municipal bonds


A) are not required to pay federal income tax on the interest income.
B) usually receive a higher interest rate compared to bonds issued by corporations.
C) usually receive a higher interest rate compared to stock issued by corporations.
D) pay taxes on the dividends earned from these bonds.

E) B) and C)
F) C) and D)

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On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

A) True
B) False

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Which of the following is correct?


A) In a closed economy, equilibrium in the market for loanable funds occurs where saving = investment.
B) Investment is the source for the supply of loanable funds.
C) If there is a surplus in the market for loanable funds, the interest rate rises.
D) All of the above are correct

E) All of the above
F) A) and D)

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In a closed economy, private saving is


A) the amount of income that households have left after paying for their taxes and consumption.
B) the amount of income that businesses have left after paying for the factors of production.
C) the amount of tax revenue that the government has left after paying for its spending.
D) always equal to investment.

E) B) and D)
F) None of the above

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We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that


A) the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B) Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C) Bond A has a term of 20 years and Bond B has a term of 2 years.
D) All of the above are correct.

E) A) and D)
F) A) and C)

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You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?


A) The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower.
B) The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher.
C) Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone.
D) Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.

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

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Which of the following statements is not correct?


A) If GDP is rising faster than debt, the government is, in some sense, living within its means.
B) The ratio of debt to GDP in the United States has always been less than one.
C) Debts during wars may distribute the burden of fighting the war more evenly across generations.
D) During times of peace in the United States, the ratio of debt to GDP sometimes rose.

E) B) and D)
F) B) and C)

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Retained earnings are


A) earnings of a company that are not paid out to stockholders.
B) the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C) the single most important piece of information about a stock.
D) computed by multiplying the dividend yield by the price of the stock.

E) A) and B)
F) All of the above

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Most entrepreneurs finance their purchases of real capital using their past saving.

A) True
B) False

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Which of the following is not a nonsensical headline?


A) British perpetuities about to mature.
B) Disney issues new bonds with term of 7 percent.
C) Corporate bonds currently pay higher interest rates than government bonds.
D) Standard and Poor's judges new junk bond to have very low credit risk.

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

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