Question 1

Which of the following statements is correct?

Accepted Answer

A)  The total income in the economy that remains after paying for consumption and government purchases is called private saving.
B)  The sum of private saving and national saving is called public saving.
C)  For a closed economy, the sum of private saving and public saving must equal investment.
D)  For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.E) A) and B)
F) B) and D)

Question 2

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

A)  30 major U.S. corporations.
B)  100 major U.S. corporations.
C)  500 representative U.S. corporations.
D)  1,000 representative U.S. corporations.E) None of the above
F) A) and B)

Question 3

Which of the following is correct?

Accepted Answer

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

Question 4

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Question 5

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rise.
B)  and quantity of loanable funds fall.
C)  rises and the quantity of loanable funds falls.
D)  falls and the quantity of loanable funds rises.E) A) and B)
F) C) and D)

Question 6

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

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

Question 7

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

Accepted Answer

A)  the supply of, and demand for, those shares determine the price per share.
B)  each share represents ownership of 1 percent of the firm.
C)  the firm is engaging in equity finance.
D)  All of the above are correct.E) A) and C)
F) C) and D)

Question 8

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

Accepted Answer

A) True 
 B)False

Question 9

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 10

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Accepted Answer

A)  borrowing directly.
B)  borrowing indirectly.
C)  lending directly.
D)  lending indirectly.E) B) and C)
F) A) and C)

Question 11

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)  less likely to expand. This illustrates why the supply of loanable funds slopes downward.
B)  more likely to expand. This illustrates why the supply of loanable funds slopes upward.
C)  less likely to expand. This illustrates why the demand for loanable funds slopes downward.
D)  more likely to expand. This illustrates why the demand for loanable funds slopes upward.E) None of the above
F) B) and D)

Question 12

A bond is a

Accepted Answer

A)  financial intermediary.
B)  certificate of indebtedness.
C)  certificate of partial ownership in an enterprise.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 13

Two of the economy's most important financial intermediaries are

Accepted Answer

A)  suppliers of funds and demanders of funds.
B)  banks and the bond market.
C)  the stock market and the bond market.
D)  banks and mutual funds.E) B) and D)
F) None of the above

Question 14

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 C)

Question 15

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Accepted Answer

A)  The government budget went from surplus to deficit.
B)  The government instituted an investment tax credit.
C)  The government reduced the tax rate on savings.
D)  None of the above is correct.E) B) and D)
F) B) and C)

Question 16

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Accepted Answer

A)  S = I.
B)  S = 0.
C)  I = S + NX.
D)  S = I + NX.E) C) and D)
F) All of the above

Question 17

Banks and mutual funds are examples of financial markets.

Accepted Answer

A) True 
 B)False

Question 18

Other things the same, a higher interest rate induces people to

Accepted Answer

A)  save more, so the supply of loanable funds slopes upward.
B)  save less, so the supply of loanable funds slopes downward.
C)  invest more, so the supply of loanable funds slopes upward.
D)  invest less, so the supply of loanable funds slopes downward.E) All of the above
F) B) and D)

Question 19

A budget surplus is created if

Accepted Answer

A)  the government sells more bonds than it buys back.
B)  the government spends more than it receives in tax revenue.
C)  private saving is greater than zero.
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 20

Longview Corporation has a stock price of $50, has issued 2,000,000 shares of stock, has retained earnings of $4 million dollars, and a dividend yield of 4 percent. The price-earnings ratio for Longview stock is

Accepted Answer

A)  25, which is high compared to historical standards of the market.
B)  25, which is low compared to historical standards of the market.
C)  12.5, which is low compared to historical standards of the market.
D)  12.5, which is high compared to historical standards of the market.E) C) and D)
F) A) and C)

Exam 13: Saving, Investment, and the Financial System

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Correct AnswerverifiedShow Answer

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Correct AnswerverifiedShow Answer

Longview Corporation has a stock price of $50, has issued 2,000,000 shares of stock, has retained earnings of $4 million dollars, and a dividend yield of 4 percent. The price-earnings ratio for Longview stock is

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average is now based on the prices of the stocks of

Correct AnswerverifiedShow Answer

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Correct AnswerverifiedShow Answer

A budget surplus is created if

Correct AnswerverifiedShow Answer

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Correct AnswerverifiedShow Answer

Banks and mutual funds are examples of financial markets.

Correct AnswerverifiedShow Answer

Two of the economy's most important financial intermediaries are

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, a higher interest rate induces people to

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

A bond is a

Correct AnswerverifiedShow Answer

Kathleen is considering expanding her dress shop. If interest rates rise she is

Correct AnswerverifiedShow Answer

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Correct AnswerverifiedShow Answer

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?

Correct AnswerverifiedShow Answer

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