Question 1

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future.
C)   Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations.
D)   All of the above are correct.E) B) and C)
F) A) and B)

Question 2

Figure 8-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.
 
-Refer to Figure 8-2. Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A)   The government goes from running a budget deficit to running a budget surplus.
B)   Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.
C)   A change in the tax laws encourages people to consume less and save more.
D)   A change in the tax laws encourages people to consume more and save less.E) A) and B)
F) C) and D)

Question 3

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Accepted Answer

A)   is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
B)   is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.
C)   is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
D)   is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.E) None of the above
F) A) and C)

Question 4

The sale of stocks

Accepted Answer

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

Question 5

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A)   The demand for loanable funds shifted rightward.
B)   The demand for loanable funds shifted leftward.
C)   The supply of loanable funds shifted rightward.
D)   The supply of loanable funds shifted leftward.E) None of the above
F) B) and D)

Question 6

Other things the same, an increase in the interest rate

Accepted Answer

A)   would shift the demand for loanable funds to the right.
B)   would shift the demand for loanable funds to the left.
C)   would increase the quantity of loanable funds demanded.
D)   would decrease the quantity of loanable funds demanded.E) None of the above
F) All of the above

Question 7

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 Exxon Mobil Corporation and Bond B was issued by the state of New York.
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 D)
F) A) and C)

Question 8

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A)   The government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
B)   Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital.
C)   Consumers decide to decrease consumption and work more.
D)   All of the above could explain why the interest rate would be unchanged.E) None of the above
F) A) and C)

Question 9

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

Question 10

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

Question 11

In addition to

Accepted Answer

A)   performing financial intermediation, banks are important in that they help create a medium of exchange.
B)   serving as financial markets, mutual funds are important in that they help create a store of value.
C)   serving as stores of value, stocks and bonds also serve as media of exchange.
D)   All of the above are correct.E) A) and D)
F) B) and D)

Question 12

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

Accepted Answer

A)   7 percent.
B)   3 percent.
C)   2.5 percent.
D)   .4 percent.E) A) and C)
F) A) and B)

Question 13

Compared to bondholders, stockholders

Accepted Answer

A)   face higher risk and have the potential for higher returns.
B)   face higher risk but receive a fixed payment.
C)   face lower risk and have the potential for higher returns.
D)   face lower risk but receive a fixed payment.E) None of the above
F) A) and B)

Question 14

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A)   raise the demand for existing shares of the stock, causing the price to rise
B)   decrease the demand for existing shares of the stock, causing the price to fall
C)   raise the supply of the existing shares of stock, causing the price to rise
D)   raise the supply of the existing shares of stock, causing the price to fallE) A) and C)
F) B) and C)

Question 15

In the small closed economy of San Lucretia, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 70 billion denars, government purchases of goods and services were 80 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lucretia?

Accepted Answer

A)   270 billion denars, 50 billion denars
B)   260 billion denars, 60 billion denars
C)   250 billion denars, 70 billion denars
D)   None of the above is correct.E) A) and C)
F) None of the above

Question 16

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Accepted Answer

A)   debt finance and so become part owners of Crate and Barrel.
B)   debt finance and so become creditors of Crate and Barrel.
C)   equity finance and so become part owners of Crate and Barrel.
D)   equity finance and so become creditors of Crate and Barrel.E) B) and C)
F) C) and D)

Question 17

A creditor of a corporation holds

Accepted Answer

A)   bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
B)   bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.
C)   stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
D)   stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.E) A) and D)
F) B) and C)

Question 18

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

Question 19

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)   2,500, deficit
B)   2,500, surplus
C)   1,000, deficit
D)   1,000, surplusE) A) and D)
F) All of the above

Question 20

Digital Publishing has a share price of $28, retained earnings of $0.60 per share, and a dividend yield of 5 percent. What is Digital's price-earnings ratio?

Accepted Answer

A)   24
B)   16
C)   14
D)   12E) None of the above
F) A) and D)

Exam 8: Saving, Investment, and the Financial System

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Correct Answer
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A creditor of a corporation holds

Correct Answer
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Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Correct Answer
verified

In addition to

Correct Answer
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Compared to bondholders, stockholders

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

Correct Answer
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Figure 8-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 8-2. Which of the following events would shift the demand curve from D1 to D2?

Correct Answer
verified

A bond is a

Correct Answer
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Other things the same, an increase in the interest rate

Correct Answer
verified

Digital Publishing has a share price of $28, retained earnings of $0.60 per share, and a dividend yield of 5 percent. What is Digital's price-earnings ratio?

Correct Answer
verified

Correct Answer
verified

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Correct Answer
verified

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Correct Answer
verified

The sale of stocks

Correct Answer
verified

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 Answer
verified

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

Correct Answer
verified

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Correct Answer
verified

Volume, as reported in stock tables, refers to the

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

A creditor of a corporation holds

Correct AnswerverifiedShow Answer

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Correct AnswerverifiedShow Answer

In addition to

Correct AnswerverifiedShow Answer

Compared to bondholders, stockholders

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Figure 8-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 8-2. Which of the following events would shift the demand curve from D1 to D2?

Correct AnswerverifiedShow Answer

A bond is a

Correct AnswerverifiedShow Answer

Other things the same, an increase in the interest rate

Correct AnswerverifiedShow Answer

Digital Publishing has a share price of $28, retained earnings of $0.60 per share, and a dividend yield of 5 percent. What is Digital's price-earnings ratio?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Correct AnswerverifiedShow Answer

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Correct AnswerverifiedShow Answer

The sale of stocks

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

If the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Correct AnswerverifiedShow Answer

Volume, as reported in stock tables, refers to the

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Correct AnswerverifiedShow Answer

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