Question 1

Which of the following best describes the relationship between government deficit and government debt?

Accepted Answer

A)  If the government currently has a budget deficit, currently it must have also a debt.
B)  If the government currently has a budget deficit, the debt is increasing.
C)  If the government currently has a budget deficit, government expenditures must be less than taxes.
D)  If the government currently has a budget deficit, national savings must be higher.E) B) and C)
F) A) and D)

Question 2

What makes Y = C + I + G + NX an identity?

Accepted Answer

A)  Each symbol identifies a variable.
B)  The right-hand and left-hand sides are equal.
C)  The equality holds due to the way the variables are defined.
D)  This relationship is identical for all economies.E) A) and C)
F) C) and D)

Question 3

If the inflation rate is 3 percent and the real interest rate is 5 percent, what is the nominal interest rate?

Accepted Answer

A)  2 percent
B)  3 percent
C)  5 percent
D)  8 percentE) A) and B)
F) A) and C)

Question 4

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Question 5

In a closed economy, what does (Y - T - C)  represent?

Accepted Answer

A)  national saving
B)  government tax revenue
C)  public saving
D)  private savingE) A) and D)
F) B) and C)

Question 6

The country of Aquilonia does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year, collects $7 billion in taxes, and provides $3 billion in transfer payments to households. Private saving in Aquilonia is $5 billion. What is consumption?

Accepted Answer

A)  $18 billion
B)  $21 billion
C)  $13 billion
D)  There is not enough information to answer the question.E) A) and B)
F) All of the above

Question 7

Which of the following best defines the nominal interest rate?

Accepted Answer

A)  It is the interest rate corrected for inflation.
B)  It is the interest rate as usually reported by banks.
C)  It is the real rate of return to the lender.
D)  It is the real cost of borrowing to the borrower.E) A) and B)
F) B) and D)

Question 8

Which of the following terms refers to the length of time until a bond matures?

Accepted Answer

A)  duration
B)  term
C)  maturity
D)  intermediationE) A) and B)
F) C) and D)

Question 9

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, which of the following would most likely happen?

Accepted Answer

A)  There would be no change in the interest rate or saving.
B)  The interest rate would decrease, and saving would increase.
C)  The interest rate would increase, and saving would decrease.
D)  The interest rate would increase, and saving would increase.E) A) and D)
F) None of the above

Question 10

What would an increase in the budget deficit most likely do to investment spending?

Accepted Answer

A)  It would make investment spending fall.
B)  It would make investment spending rise.
C)  It would not affect investment spending.
D)  It may increase, decrease, or not affect investment spending.E) A) and C)
F) A) and B)

Question 11

Suppose that the government finds a major defect in one of a company's products and demands that it be taken off the market. Which of the following would we expect?

Accepted Answer

A)  The supply of the stock and the price will both rise.
B)  The supply of the stock and the price will both fall.
C)  The demand for the stock and the price will both rise.
D)  The demand for the stock and the price will both fall.E) B) and D)
F) B) and C)

Question 12

Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of government expenditures would make national saving equal 1000?

Accepted Answer

A)  2500
B)  3500
C)  7500
D)  9000E) A) and C)
F) A) and D)

Question 13

Which of the following does the slope of the demand for loanable funds curve represent?

Accepted Answer

A)  the positive relation between the real interest rate and investment
B)  the negative relation between the real interest rate and investment
C)  the positive relation between the real interest rate and saving
D)  the negative relation between the real interest rate and savingE) A) and D)
F) B) and C)

Question 14

What are junk bonds?

Accepted Answer

A)  Junk bonds are those that yield low interest rates.
B)  Junk bonds are those that never mature.
C)  Junk bonds refer to bonds that have been resold many times.
D)  Junk bonds are those issued by financially weak corporations.E) A) and B)
F) A) and D)

Question 15

What do people who buy newly issued stock in a corporation such as Rockwood Pottery Ltd. provide?

Accepted Answer

A)  They buy debt finance and so become part owners of Rockwood.
B)  They buy debt finance and so become creditors of Rockwood.
C)  They buy equity finance and so become part owners of Rockwood.
D)  They buy equity finance and so become creditors of Rockwood.E) A) and B)
F) B) and C)

Question 16

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 17

Which of the following best defines stock indexes?

Accepted Answer

A)  They are the average of a group of stock prices.
B)  They are the average of a group of stock yields.
C)  They are reports in the newspaper that report on the price of the stock and earnings of the corporation.
D)  They are measures of the risk relative to the profitability of corporations.E) A) and B)
F) A) and C)

Question 18

Since what year has the Dow Jones Industrial Average been computed regularly?

Accepted Answer

A)  1976
B)  1948
C)  1913
D)  1896E) B) and D)
F) All of the above

Question 19

If you know that Alberta Dreams Corporation, a travel equipment and clothing company, has revenues of $30 million and accounting costs of $10 million, you know that its earnings are $20 million.

Accepted Answer

A) True 
 B)False

Question 20

Suppose that in a closed economy GDP is equal to 10,000, taxes are equal to 2500, consumption equals 6500, and government expenditures equal 2000. What is private saving?

Accepted Answer

A)  1500
B)  1000
C)  500
D)  0E) B) and C)
F) A) and B)

Exam 8: Saving, Investment, and the Financial System

Correct Answer
verified

Which of the following best defines stock indexes?

Correct Answer
verified

If the inflation rate is 3 percent and the real interest rate is 5 percent, what is the nominal interest rate?

Correct Answer
verified

What are junk bonds?

Correct Answer
verified

What makes Y = C + I + G + NX an identity?

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

What do people who buy newly issued stock in a corporation such as Rockwood Pottery Ltd. provide?

Correct Answer
verified

Suppose that in a closed economy GDP is equal to 10,000, taxes are equal to 2500, consumption equals 6500, and government expenditures equal 2000. What is private saving?

Correct Answer
verified

Which of the following best defines the nominal interest rate?

Correct Answer
verified

What would an increase in the budget deficit most likely do to investment spending?

Correct Answer
verified

Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of government expenditures would make national saving equal 1000?

Correct Answer
verified

Which of the following does the slope of the demand for loanable funds curve represent?

Correct Answer
verified

Which of the following terms refers to the length of time until a bond matures?

Correct Answer
verified

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, which of the following would most likely happen?

Correct Answer
verified

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Correct Answer
verified

If you know that Alberta Dreams Corporation, a travel equipment and clothing company, has revenues of $30 million and accounting costs of $10 million, you know that its earnings are $20 million.

Correct Answer
verified

Suppose that the government finds a major defect in one of a company's products and demands that it be taken off the market. Which of the following would we expect?

Correct Answer
verified

Which of the following best describes the relationship between government deficit and government debt?

Correct Answer
verified

In a closed economy, what does (Y - T - C) represent?

Correct Answer
verified

Since what year has the Dow Jones Industrial Average been computed regularly?

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Correct AnswerverifiedShow Answer

Which of the following best defines stock indexes?

Correct AnswerverifiedShow Answer

If the inflation rate is 3 percent and the real interest rate is 5 percent, what is the nominal interest rate?

Correct AnswerverifiedShow Answer

What are junk bonds?

Correct AnswerverifiedShow Answer

What makes Y = C + I + G + NX an identity?

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

What do people who buy newly issued stock in a corporation such as Rockwood Pottery Ltd. provide?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 10,000, taxes are equal to 2500, consumption equals 6500, and government expenditures equal 2000. What is private saving?

Correct AnswerverifiedShow Answer

Which of the following best defines the nominal interest rate?

Correct AnswerverifiedShow Answer

What would an increase in the budget deficit most likely do to investment spending?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is 10,000, consumption is 6500, and taxes are 2000. What value of government expenditures would make national saving equal 1000?

Correct AnswerverifiedShow Answer

Which of the following does the slope of the demand for loanable funds curve represent?

Correct AnswerverifiedShow Answer

Which of the following terms refers to the length of time until a bond matures?

Correct AnswerverifiedShow Answer

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, which of the following would most likely happen?

Correct AnswerverifiedShow Answer

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Correct AnswerverifiedShow Answer

If you know that Alberta Dreams Corporation, a travel equipment and clothing company, has revenues of $30 million and accounting costs of $10 million, you know that its earnings are $20 million.

Correct AnswerverifiedShow Answer

Suppose that the government finds a major defect in one of a company's products and demands that it be taken off the market. Which of the following would we expect?

Correct AnswerverifiedShow Answer

Which of the following best describes the relationship between government deficit and government debt?

Correct AnswerverifiedShow Answer

In a closed economy, what does (Y - T - C) represent?

Correct AnswerverifiedShow Answer

Since what year has the Dow Jones Industrial Average been computed regularly?

Correct AnswerverifiedShow Answer

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