Question 1

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 2

Compared to stocks,bonds offer the holder

Accepted Answer

A)  lower risk and lower potential return.
B)  lower risk and higher potential return.
C)  higher risk and lower potential return.
D)  higher risk and higher potential return.E) None of the above
F) A) and D)

Question 3

For an economy that engages in international trade,GDP is divided into four components.Which of the following items is not one of those components?

Accepted Answer

A)  consumption
B)  taxes
C)  government purchases
D)  net exportsE) B) and D)
F) A) and B)

Question 4

The primary economic function of the financial system is to

Accepted Answer

A)  keep interest rates low.
B)  provide expert advice to savers and investors.
C)  match one person's consumption expenditures with another person's capital expenditures.
D)  match one person's saving with another person's investment.E) None of the above
F) A) and D)

Question 5

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 6

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 7

A corporation's earnings are the amount of revenue it receives for the sale of its products

Accepted Answer

A)  minus its cost of production as measured by its accountants.Earnings must be paid out as dividends.
B)  minus its cost of production as measured by its accountants.Earnings may be paid out as dividends or retained by the corporation.
C)  minus its direct and indirect costs as measured by its economists.Earnings must be paid out as dividends.
D)  minus its direct and indirect cost as measure by its economists.Earnings may be paid out as dividends or retained by the corporation.E) C) and D)
F) A) and D)

Question 8

All financial intermediaries are financial institutions,but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 9

A low P/E for a stock indicates that

Accepted Answer

A)  people may expect earnings to fall in the future,perhaps because the firm will be faced with increased competition.
B)  its dividends have been low so that no one is willing to pay very much for it.
C)  the corporation is possibly overvalued.
D)  All of the above are correct.E) B) and D)
F) A) and B)

Question 10

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

Question 11

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

Question 12

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

Accepted Answer

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) B) and D)

Question 13

The slope of the demand for loanable funds curve represents the

Accepted Answer

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

Question 14

In a closed economy,national saving equals

Accepted Answer

A)  investment.
B)  income minus the sum of consumption and government purchases.
C)  private saving plus public saving.
D)  All of the above are correct.E) None of the above
F) All of the above

Question 15

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

Question 16

If national saving in a closed economy is greater than zero,which of the following must be true?

Accepted Answer

A)  Either public saving or private saving must be greater than zero.
B)  Investment is positive.
C)     0">Y−C−G>0Y - C - G > 0Y−C−G>0 
D)  All of the above are correct. E) A) and B)
F) A) and C)

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of 1.70 dinars per share and a dividend of 0.80 dinars.What was its dividend yield?

Accepted Answer

A)  1.25%
B)  1.60%
C)  3.33%
D)  7.50%E) None of the above
F) All of the above

Question 19

A government reduces its budget deficit,but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default.Which of the following is correct.

Accepted Answer

A)  The reduced budget deficit will raise interest rates in general.The increased risk of default will raise interest rates on government bonds.
B)  The reduced budget deficit will raise interest rates in general.The increased risk of default will reduce interest rates on government bonds.
C)  The reduced budget deficit will reduce interest rates in general.The increased risk of default will raise interest rates on government bonds.
D)  The reduced budget deficit will reduce interest rates in general.The increased risk of default will reduce interest rates on government bonds.E) A) and C)
F) A) and D)

Question 20

Retained earnings are

Accepted Answer

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 D)
F) None of the above

Exam 26: Saving,investment,and the Financial System

Over-the-Rhine Cheese Corporation had a P/E ratio of 20,retained earnings of 1.70 dinars per share and a dividend of 0.80 dinars.What was its dividend yield?

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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

If national saving in a closed economy is greater than zero,which of the following must be true?

Correct AnswerverifiedShow Answer

The slope of the demand for loanable funds curve represents the

Correct AnswerverifiedShow Answer

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Correct AnswerverifiedShow Answer

The primary economic function of the financial system is to

Correct AnswerverifiedShow Answer

In a closed economy,national saving equals

Correct AnswerverifiedShow Answer

A corporation's earnings are the amount of revenue it receives for the sale of its products

Correct AnswerverifiedShow Answer

A government may use deficit financing to smooth tax rates over time.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A government reduces its budget deficit,but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default.Which of the following is correct.

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

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

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For an economy that engages in international trade,GDP is divided into four components.Which of the following items is not one of those components?

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

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A low P/E for a stock indicates that

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Retained earnings are

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All financial intermediaries are financial institutions,but not all financial institutions are financial intermediaries.

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Draw and label a graph showing equilibrium in the market for loanable funds.

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Compared to stocks,bonds offer the holder

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Market for...
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