Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Accepted Answer

A)   public and national saving would rise
B)   public and national saving would fall
C)   public saving would rise and national saving would fall
D)   public saving would fall and national saving would riseE) B) and D)
F) B) and C)

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) B) and C)

Question 4

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)   the supply of loanable funds does not change; a higher interest rate reduces private saving
B)   the supply of loanable funds does not change; a higher interest rate raises private saving
C)   at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving
D)   at any interest rate the supply of loanable funds is less; a higher interest rate raises private savingE) B) and D)
F) A) and C)

Question 5

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)   stock markets
B)   financial institutions
C)   financial markets
D)   financial intermediariesE) A) and D)
F) B) and D)

Question 6

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)   3
B)   8
C)   15
D)   26E) B) and C)
F) All of the above

Question 7

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

Accepted Answer

Market for...

Question 8

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)   Y - C - G > 0.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 9

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

Accepted Answer

A)   The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower.
B)   The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher.
C)   Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone.
D)   Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.E) B) and C)
F) None of the above

Question 10

The financial system is important because it helps to match one person's with another person's .

Accepted Answer

The answer of The financial system is important because it...

Question 11

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. 
-Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Accepted Answer

A)   the quantity of loanable funds traded to increase to $125 and the interest rate fall to 5% (point 
D)  .
B)   the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point 
C)  .
C)   the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% (point 
B)  .
D)   the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% (point 
E)  .E) B) and D)
F) B) and C)

Question 12

The final element of a financial crisis is

Accepted Answer

A)   an economic downturn.
B)   a decline in confidence in financial institutions.
C)   declining prices of real estate or other assets.
D)   a vicious circle.E) B) and C)
F) A) and B)

Question 13

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Accepted Answer

A)   the government has a budget surplus and investment is 1,000
B)   the government has a budget surplus and investment is 2,000
C)   the government has a budget deficit and investment is 1,000
D)   the government has a budget deficit and investment is 2,000E) A) and B)
F) B) and C)

Question 14

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 15

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)   investment falls by $1b.
B)   investment falls by $3b.
C)   investment increases by $1b.
D)   investment falls by $2b.E) B) and C)
F) All of the above

Question 16

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A)   $5 billion
B)   $4 billion
C)   $3 billion
D)   $11 billionE) A) and B)
F) B) and C)

Question 17

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)   pays continuously compounded interest.
B)   pays interest only when it matures.
C)   never matures.
D)   will be used to purchase another bond when it matures unless the owner specifies otherwise.E) A) and B)
F) B) and C)

Question 18

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, investment amounts to

Accepted Answer

A)   $0.4 trillion.
B)   $2.1 trillion.
C)   $1.7 trillion.
D)   $1.2 trillion.E) None of the above
F) All of the above

Question 19

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) All of the above

Question 20

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct Answer
verified

Historically, the typical price-earnings ratio for stocks is about

Correct Answer
verified

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, investment amounts to

Correct Answer
verified

Correct Answer
verified

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct Answer
verified

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

Correct Answer
verified

The financial system is important because it helps to match one person's with another person's .

Correct Answer
verified

A perpetuity is distinguished from other bonds in that it

Correct Answer
verified

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct Answer
verified

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Correct Answer
verified

Which of the following are effects of an increased budget deficit?

Correct Answer
verified

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct Answer
verified

The final element of a financial crisis is

Correct Answer
verified

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

Correct Answer
verified
Market for...
View Answer

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Correct Answer
verified

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 Answer
verified

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct AnswerverifiedShow Answer

Historically, the typical price-earnings ratio for stocks is about

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, investment amounts to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

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 financial system is important because it helps to match one person's with another person's .

Correct AnswerverifiedShow Answer

A perpetuity is distinguished from other bonds in that it

Correct AnswerverifiedShow Answer

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct AnswerverifiedShow Answer

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Correct AnswerverifiedShow Answer

Which of the following are effects of an increased budget deficit?

Correct AnswerverifiedShow Answer

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct AnswerverifiedShow Answer

The final element of a financial crisis is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedMarket for...View AnswerShow Answer

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a change in tax laws that encouraged households to save more would likely cause

Correct AnswerverifiedShow 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

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Correct AnswerverifiedShow Answer

Correct Answer
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Market for...
View Answer

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Correct Answer
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Correct Answer
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