Question 1

Which of the following is correct?

Accepted Answer

A)   The maturity of a bond refers to the amount to be paid back.
B)   The principal of the bond refers to the person selling the bond.
C)   A bond buyer cannot sell a bond before it matures.
D)   None of the above is correct.E) A) and D)
F) A) and C)

Question 2

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Question 3

The prices of stock traded on exchanges are determined by

Accepted Answer

A)   the Corporate Stock Administration.
B)   the administrators of NASDAQ.
C)   the supply of,and demand for,the stock.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 4

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

Question 5

Suppose the market for loanable funds is in equilibrium.Given the numbers below,determine the quantity of loanable funds demanded.

Accepted Answer

A)   $25 billion
B)   $20 billion
C)   $15 billion
D)   $10 billionE) C) and D)
F) All of the above

Question 6

Scenario 26-1.Assume the following information for an imaginary,closed economy.
GDP = $110,000;consumption = $70,000;private saving = $8,000;national
saving = $12,000.
-Refer to Scenario 26-1.For this economy,government purchases amount to

Accepted Answer

A)   $12,000.
B)   $18,000.
C)   $28,000.
D)   $40,000.E) B) and C)
F) A) and B)

Question 7

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) B) and C)
F) A) and D)

Question 8

Long-term bonds are

Accepted Answer

A)   riskier than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
B)   riskier than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
C)   less risky than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
D)   less risky than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) C) and D)
F) All of the above

Question 9

Suppose the U.S.offered a tax credit for firms that built new factories in the U.S..Then

Accepted Answer

A)   the demand for loanable funds would shift rightward,initially creating a surplus of loanable funds at the original interest rate.
B)   the demand for loanable funds would shift rightward,initially creating a shortage of loanable funds at the original interest rate.
C)   the supply of loanable funds would shift rightward,initially creating a surplus of loanable funds at the original interest rate.
D)   the supply of loanable funds would shift rightward,initially creating a shortage of loanable funds at the original interest rate.E) B) and C)
F) All of the above

Question 10

A checking deposit functions as

Accepted Answer

A)   a medium of exchange and as a store of value.
B)   a medium of exchange,but not as a store of value.
C)   a store of value,but not as a medium of exchange.
D)   neither a medium of exchange nor as a store of value.E) A) and B)
F) None of the above

Question 11

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

Question 12

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A)   Interest rates would rise.
B)   Interest rates would be unaffected.
C)   Interest rates would fall.
D)   The effect on the interest rate is uncertain.E) B) and C)
F) A) and D)

Question 13

Other things being constant,when a firm sells new shares of stock,the

Accepted Answer

A)   supply of the stock increases and the price decreases as a result.
B)   supply of the stock decreases and the price increases as a result.
C)   demand for the stock increases and the price increases as a result.
D)   demand for the stock decreases and the price decreases as a result.E) A) and B)
F) B) and C)

Question 14

The ratio of debt to GDP in the United States tended to fall

Accepted Answer

A)   during wars.
B)   during the late 1990s.
C)   during the first half of this decade
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 15

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)   Fran and Miller are both investing.
B)   Fran and Miller are both saving.
C)   Fran is investing;Miller is saving.
D)   Fran is saving;Miller is investing.E) None of the above
F) B) and D)

Question 16

The financial system coordinates investment and saving,which are important determinants of long-run real GDP.

Accepted Answer

A) True 
 B)False

Question 17

Volume,as reported in stock tables,refers to the

Accepted Answer

A)   number of shares traded.
B)   percentage of shares outstanding traded.
C)   number of shares traded times the price they sold at.
D)   number of shares of a company traded divided by the shares of all companies traded.E) A) and B)
F) B) and C)

Question 18

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we would expect this reduction in the budget deficit to have

Accepted Answer

A)   increased both interest rates and investment.
B)   increased interest rates and decreased investment.
C)   decreased interest rates and increased investment.
D)   decreased both interest rates and investment.E) A) and B)
F) B) and D)

Question 19

As an alternative to selling shares of stock as a means of raising funds,a large company could,instead,

Accepted Answer

A)   invest in physical capital.
B)   use equity finance.
C)   sell bonds.
D)   purchase bonds.E) C) and D)
F) B) and C)

Question 20

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)   Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
B)   Bond A was issued by the General Electric Corporation and Bond B was issued by the state of California.
C)   Bond A has a term of 20 years and Bond B has a term of 1 year.
D)   All of the above are correct.E) B) and C)
F) All of the above

Exam 26: Saving, investment, and the Financial System

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we would expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

Other things being constant,when a firm sells new shares of stock,the

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If there is shortage of loanable funds,then

Correct AnswerverifiedShow Answer

The financial system coordinates investment and saving,which are important determinants of long-run real GDP.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

Correct AnswerverifiedShow Answer

Long-term bonds are

Correct AnswerverifiedShow Answer

Suppose the U.S.offered a tax credit for firms that built new factories in the U.S..Then

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Correct AnswerverifiedShow Answer

The prices of stock traded on exchanges are determined by

Correct AnswerverifiedShow Answer

Volume,as reported in stock tables,refers to the

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

Scenario 26-1.Assume the following information for an imaginary,closed economy. GDP = $110,000;consumption = $70,000;private saving = $8,000;national saving = $12,000. -Refer to Scenario 26-1.For this economy,government purchases amount to

Correct AnswerverifiedShow Answer

Suppose the market for loanable funds is in equilibrium.Given the numbers below,determine the quantity of loanable funds demanded.

Correct AnswerverifiedShow Answer

As an alternative to selling shares of stock as a means of raising funds,a large company could,instead,

Correct AnswerverifiedShow Answer

A checking deposit functions as

Correct AnswerverifiedShow Answer

The ratio of debt to GDP in the United States tended to fall

Correct AnswerverifiedShow Answer

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