Question 1

In the language of macroeconomics, investment refers to

Accepted Answer

A)   saving.
B)   the purchase of new capital.
C)   the purchase of stocks, bonds, or mutual funds.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 2

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Accepted Answer

A)   8 percent.
B)   2 percent.
C)   3 percent.
D)   5 percent.E) All of the above
F) None of the above

Question 3

Which of the following equations represents GDP for an open economy?

Accepted Answer

A)   Y = C + I + G + NX
B)   NX = I - G
C)   I = Y - C + G + NX
D)   Y = C + I + GE) All of the above
F) C) and D)

Question 4

Owners of municipal bonds

Accepted Answer

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) All of the above
F) B) and D)

Question 5

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

Accepted Answer

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) B) and C)

Question 6

The sale of bonds

Accepted Answer

A)   and stocks to raise money is called debt finance.
B)   and stocks to raise money is called equity finance.
C)   to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance.
D)   to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance.E) B) and C)
F) A) and C)

Question 7

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

Accepted Answer

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

Question 8

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. 
-Refer to Figure 26-5. Starting at point A, the enactment of an investment tax credit would likely cause

Accepted Answer

A)   the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C)  .
B)   the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B)  .
C)   the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E)  .
D)   the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% (point 
D)  .E) A) and C)
F) C) and D)

Question 9

Which of the following is an example of financial intermediation?

Accepted Answer

A)   John buys shares of stock issued by a fast food company.
B)   A foreign government buys bonds issued by the U.S. Treasury.
C)   Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 10

Other things the same, an increase in the budget deficit

Accepted Answer

A)   shifts the demand for loanable funds right, so the interest rate rises.
B)   shifts the demand for loanable funds left, so the interest rate falls.
C)   shifts the supply of loanable funds right, so the interest rate falls.
D)   shifts the supply of loanable funds left, so the interest rate rises.E) A) and D)
F) B) and D)

Question 11

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

Accepted Answer

A) True 
 B)False

Question 12

If the demand for loanable funds shifts to the right, then initially there is a

Accepted Answer

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

Question 13

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Accepted Answer

A)   the inflation rate.
B)   gross domestic product.
C)   the real interest rate.
D)   the nominal interest rate.E) A) and B)
F) A) and C)

Question 14

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment ...

Question 15

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The demand for loana...

Question 16

A budget deficit

Accepted Answer

A)   changes the supply of loanable funds.
B)   changes the demand for loanable funds.
C)   changes both the supply of and demand for loanable funds.
D)   does not influence the supply of or the demand for loanable funds.E) None of the above
F) B) and C)

Question 17

If there is shortage 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) A) and C)
F) B) and C)

Question 18

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

Question 19

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 20

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Accepted Answer

A)   retained earnings.
B)   dividends.
C)   interest payments.
D)   capital accounts.E) B) and C)
F) A) and D)

Exam 26: Saving, Investment, and the Financial System

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Correct AnswerverifiedThe demand for loana...View AnswerShow Answer

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

A budget deficit

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The sale of bonds

Correct AnswerverifiedShow Answer

If there is shortage of loanable funds, then

Correct AnswerverifiedShow Answer

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Owners of municipal bonds

Correct AnswerverifiedShow Answer

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, the enactment of an investment tax credit would likely cause

Correct AnswerverifiedShow Answer

Other things the same, an increase in the budget deficit

Correct AnswerverifiedShow Answer

Which of the following is an example of financial intermediation?

Correct AnswerverifiedShow Answer

Which of the following equations represents GDP for an open economy?

Correct AnswerverifiedShow Answer

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Correct AnswerverifiedShow Answer

In the language of macroeconomics, investment refers to

Correct AnswerverifiedShow Answer

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the right, then initially there is a

Correct AnswerverifiedShow Answer

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct AnswerverifiedShow Answer

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct AnswerverifiedWhen the interest rate rises investment ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Correct Answer
verified
The demand for loana...
View 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
When the interest rate rises investment ...
View Answer

Correct Answer
verified