Question 1

The source of the supply of loanable funds

Accepted Answer

A)   is saving and the source of demand for loanable funds is investment.
B)   is investment and the source of demand for loanable funds is saving.
C)   and the demand for loanable funds is saving.
D)   and the demand for loanable funds is investment.E) C) and D)
F) All of the above

Question 2

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Accepted Answer

A)   makes saving more attractive.
B)   makes saving less attractive.
C)   makes investment more attractive.
D)   makes investment less attractive.E) A) and D)
F) B) and C)

Question 3

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 4

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 B)
F) B) and C)

Question 5

Other things the same, if the government decreases transfer payments, then

Accepted Answer

A)   both the interest rate and the equilibrium quantity of loanable funds fall.
B)   both the interest rate and the equilibrium quantity of loanable funds rise.
C)   the interest rate rises and the equilibrium quantity of loanable funds falls.
D)   the interest rate falls and the equilibrium quantity of loanable funds rises.E) A) and D)
F) B) and C)

Question 6

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Accepted Answer

A) True 
 B)False

Question 7

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Accepted Answer

A)   the quantity of loanable funds traded to increase.
B)   the interest rate to increase.
C)   the quantity of loanable funds traded to decrease.
D)   the interest rate to decrease.E) All of the above
F) A) and D)

Question 8

Which of the following is true concerning interest rates on bonds?

Accepted Answer

A)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
B)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond lower than otherwise.
C)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
D)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond lower than otherwise.E) None of the above
F) A) and D)

Question 9

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)   creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits.
B)   creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.
C)   part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.
D)   part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.E) A) and C)
F) All of the above

Question 10

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

Accepted Answer

A)   The tax code is reformed to encourage greater saving.
B)   The tax code is reformed to encourage greater investment.
C)   The government starts running a budget deficit.
D)   The government starts running a budget surplus.E) C) and D)
F) A) and B)

Question 11

Which of the following is not correct?

Accepted Answer

A)   Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services.
B)   In a closed economy net exports are zero.
C)   National saving is the sum of private saving and public saving.
D)   Purchases of capital goods are excluded from GDP.E) A) and B)
F) A) and C)

Question 12

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Question 13

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

Accepted Answer

A)   The supply of loanable funds would shift rightward and investment would increase.
B)   The supply of loanable funds would shift leftward and investment would decrease.
C)   The demand for loanable funds would shift rightward and investment would increase.
D)   The demand for loanable funds would shift leftward and investment would decrease.E) A) and B)
F) A) and D)

Question 14

Index funds

Accepted Answer

A)   typically have a higher rate of return and higher costs than managed mutual funds.
B)   typically have a higher rate of return and lower costs than managed mutual funds.
C)   typically have a lower rate of return and higher costs than managed mutual funds.
D)   typically have a lower rate of return and lower costs than managed mutual funds.E) B) and C)
F) C) and D)

Question 15

In a closed economy, public saving is the amount of

Accepted Answer

A)   income that households have left after paying for taxes and consumption.
B)   income that businesses have left after paying for the factors of production.
C)   tax revenue that the government has left after paying for its spending.
D)   spending that the government undertakes in excess of the taxes it collects.E) A) and B)
F) C) and D)

Question 16

As real interest rates fall, firms desire to

Accepted Answer

A)   buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
B)   buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
C)   buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
D)   buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.E) A) and D)
F) None of the above

Question 17

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, public saving is equal to

Accepted Answer

A)   $0.2 trillion and the government is running a budget surplus of $0.2 trillion.
B)   $0.2 trillion and the government is running a budget deficit of $0.2 trillion.
C)   -$0.2 trillion and the government is running a budget deficit of $0.2 trillion.
D)   -$0.2 trillion and the government is running a budget surplus of $0.2 trillion.E) A) and D)
F) B) and D)

Question 18

When the government goes from running a balanced budget to running a budget surplus,

Accepted Answer

A)   national saving decreases, the interest rate rises, and the economy's long­run growth rate is likely to decrease.
B)   national saving increases, the interest rate falls, and the economy's long­run growth rate is likely to decrease.
C)   national saving decreases, the interest rate rises, and the economy's long­run growth rate is likely to increase.
D)   national saving increases, the interest rate falls, and the economy's long­run growth rate is likely to increase.E) All of the above
F) None of the above

Question 19

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Accepted Answer

A)   $0.25 and the price-earnings ratio is 5.
B)   $.25 and the price-earnings ratio is 6.7.
C)   $1.25 and the price-earnings ratio is 5.
D)   $1.25 and the price-earnings ratio is 6.7.E) A) and B)
F) All of the above

Question 20

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, consumption amounts to

Accepted Answer

A)   $68,000.
B)   $38,000.
C)   $53,000.
D)   $60,000.E) B) and C)
F) None of the above

Exam 26: Saving, Investment, and the Financial System

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

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In a closed economy, public saving is the amount of

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, public saving is equal to

Correct AnswerverifiedShow Answer

As real interest rates fall, firms desire to

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When the government goes from running a balanced budget to running a budget surplus,

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Other things the same, if the government decreases transfer payments, then

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Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

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Which of the following is true concerning interest rates on bonds?

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The source of the supply of loanable funds

Correct AnswerverifiedShow Answer

A decrease in government spending and the enactment of an investment tax credit would definitely cause

Correct AnswerverifiedShow Answer

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, consumption amounts to

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What is a bond buyer promised when she buys a bond?

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Index funds

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

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The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

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In addition to

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The term loanable funds refers to all income that is not used for consumption or government expenditures.

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The slope of the supply of loanable funds is based on the logic that an increase in interest rates

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Which of the following is not correct?

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People who buy stock in a corporation such as General Electric become

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