Question 1

Suppose Sarah Lee Corporation stock has a P/E ratio of 10. Which statement best describes this P/E ratio?

Accepted Answer

A)  The P/E ratio is low, indicating that buyers may expect earnings to rise. 
B)  The P/E ratio is low, indicating that buyers may expect earnings to fall. 
C)  The P/E ratio is high, indicating that buyers may expect earnings to rise. 
D)  The P/E ratio is high, indicating that buyers may expect earnings to fall. 
A)  The P/E ratio is low, indicating that buyers may expect earnings to rise. 
B)  The P/E ratio is low, indicating that buyers may expect earnings to fall. 
C)  The P/E ratio is high, indicating that buyers may expect earnings to rise. 
D)  The P/E ratio is high, indicating that buyers may expect earnings to fall.

Question 2

Suppose that the government finds a major defect in one of a company's products and demands that it be taken off the market. What would we expect?

Accepted Answer

A)  The supply of the stock and the price will both rise. 
B)  The supply of the stock and the price will both fall. 
C)  The demand for the stock and the price will both rise. 
D)  The demand for the stock and the price will both fall. 
A)  The supply of the stock and the price will both rise. 
B)  The supply of the stock and the price will both fall. 
C)  The demand for the stock and the price will both rise. 
D)  The demand for the stock and the price will both fall.

Question 3

The following table shows information about bonds issued by governments and companies in Canada, sorted by increasing maturity. (Source: Globe and Mail, retrieved 12 August, 2010, http://www.globeinvestor.com/servlet/Page/document/v5/data/bonds/.) Does this information support the theory that less risky bonds yield lower returns? Explain your answer.

Accepted Answer

According to the theory, the return on a

Question 4

What happens when a person buys shares in a mutual fund?

Accepted Answer

A)  The person indirectly becomes owner or creditor to many companies. 
B)  The person lends to and borrows from the other shareholders in the mutual fund. 
C)  The person receives a fixed interest as long as he or she does not sell the shares. 
D)  The person lends money to the federal government. 
A)  The person indirectly becomes owner or creditor to many companies. 
B)  The person lends to and borrows from the other shareholders in the mutual fund. 
C)  The person receives a fixed interest as long as he or she does not sell the shares. 
D)  The person lends money to the federal government.

Question 5

Which of the following bond buyers did NOT buy the bond that best met his or her objective?

Accepted Answer

A)  Mia wanted a bond with a high interest rate, regardless of the risk. She purchased a junk bond. 
B)  Anna wanted the least risky bond available. She purchased a federal bond. 
C)  Bill wanted to purchase a bond that was unlikely to default. He purchased a bond that Standard & Poor's rated a low credit risk. 
D)  To reduce risk, Toby purchased a bond with a date of maturity far in the future. 
A)  Mia wanted a bond with a high interest rate, regardless of the risk. She purchased a junk bond. 
B)  Anna wanted the least risky bond available. She purchased a federal bond. 
C)  Bill wanted to purchase a bond that was unlikely to default. He purchased a bond that Standard & Poor's rated a low credit risk. 
D)  To reduce risk, Toby purchased a bond with a date of maturity far in the future.

Question 6

If there is surplus of loanable funds, what is most likely to happen?

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. 
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.

Question 7

What would an increase in the budget deficit most likely do to investment spending?

Accepted Answer

A)  It would make investment spending fall because the interest rate rises. 
B)  It would make investment spending rise because the interest rate falls. 
C)  It would make investment spending fall because the interest rate falls. 
D)  It would make investment spending rise because the interest rate rises. 
A)  It would make investment spending fall because the interest rate rises. 
B)  It would make investment spending rise because the interest rate falls. 
C)  It would make investment spending fall because the interest rate falls. 
D)  It would make investment spending rise because the interest rate rises.

Question 8

What would most likely 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 and demand for loanable funds would shift to the right. 
B)  The supply of and demand for loanable funds would shift to the left. 
C)  The supply of loanable funds would shift to the right, and the demand for loanable funds would shift to the left. 
D)  The supply of loanable funds would shift to the right, and the demand for loanable funds will remain unchanged. 
A)  The supply of and demand for loanable funds would shift to the right. 
B)  The supply of and demand for loanable funds would shift to the left. 
C)  The supply of loanable funds would shift to the right, and the demand for loanable funds would shift to the left. 
D)  The supply of loanable funds would shift to the right, and the demand for loanable funds will remain unchanged.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

In a closed economy, what does (T - G) represent?

Accepted Answer

A)  national saving 
B)  investment 
C)  private saving 
D)  public saving 
A)  national saving 
B)  investment 
C)  private saving 
D)  public saving

Question 11

Generally, when economists talk of the "interest rate," what are they talking about?

Accepted Answer

A)  the real interest rate 
B)  the current nominal interest rate 
C)  the real interest rate minus the inflation rate 
D)  the equilibrium nominal interest rate 
A)  the real interest rate 
B)  the current nominal interest rate 
C)  the real interest rate minus the inflation rate 
D)  the equilibrium nominal interest rate

Question 12

What are junk bonds?

Accepted Answer

A)  Junk bonds are those that yield low interest rates. 
B)  Junk bonds are those that never mature. 
C)  Junk bonds refer to bonds that have been resold many times. 
D)  Junk bonds are those issued by financially weak corporations. 
A)  Junk bonds are those that yield low interest rates. 
B)  Junk bonds are those that never mature. 
C)  Junk bonds refer to bonds that have been resold many times. 
D)  Junk bonds are those issued by financially weak corporations.

Question 13

Which statement best explains why the debt-to-GDP ratio is important?

Accepted Answer

A)  If GDP is rising slower than debt, the government is, in some sense, living within its means. 
B)  A declining debt-to-GDP ratio raises concerns about a country's financial difficulties. 
C)  It is a better measure than the level of debt because it takes into account a country's political stability. 
D)  It allows international comparisons of how indebted countries are. 
A)  If GDP is rising slower than debt, the government is, in some sense, living within its means. 
B)  A declining debt-to-GDP ratio raises concerns about a country's financial difficulties. 
C)  It is a better measure than the level of debt because it takes into account a country's political stability. 
D)  It allows international comparisons of how indebted countries are.

Question 14

The sale of stocks or bonds to raise money is known as equity finance.

Accepted Answer

A) True 
 B)False

Question 15

Which equation will always represent GDP in an open economy?

Accepted Answer

A)  S = I - G 
B)  I = Y - C + G 
C)  Y = C + I + G 
D)  Y = C + I + G + NX 
A)  S = I - G 
B)  I = Y - C + G 
C)  Y = C + I + G 
D)  Y = C + I + G + NX

Question 16

-Refer to Table 8-1. In dollar terms, which company paid the highest dividend per share?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
A)  A 
B)  B 
C)  C 
D)  D

Question 17

If people become less optimistic about the future earnings of Hyde Park Records Corporation, the price of stock in the company will fall.

Accepted Answer

A) True 
 B)False

Question 18

-Refer to Table 8-1. What were company D's earnings per share?

Accepted Answer

A)  $0.61 
B)  $1.38 
C)  $1.64 
D)  $38 
A)  $0.61 
B)  $1.38 
C)  $1.64 
D)  $38

Question 19

If Parliament instituted an investment tax credit, what would most likely happen to the interest rate and saving?

Accepted Answer

A)  The interest rate would rise, and saving would rise. 
B)  The interest rate would fall, and saving would fall. 
C)  The interest rate would rise, and saving would fall. 
D)  The interest rate would fall, and saving would rise. 
A)  The interest rate would rise, and saving would rise. 
B)  The interest rate would fall, and saving would fall. 
C)  The interest rate would rise, and saving would fall. 
D)  The interest rate would fall, and saving would rise.

Question 20

Henry buys a bond issued by Disney, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Accepted Answer

A)  Henry and Disney are both investing. 
B)  Henry and Disney are both saving. 
C)  Henry is investing; Disney is saving. 
D)  Henry is saving; Disney is investing. 
A)  Henry and Disney are both investing. 
B)  Henry and Disney are both saving. 
C)  Henry is investing; Disney is saving. 
D)  Henry is saving; Disney is investing.

Suppose Sarah Lee Corporation stock has a P/E ratio of 10. Which statement best describes this P/E ratio?

Suppose that the government finds a major defect in one of a company's products and demands that it be taken off the market. What would we expect?

What happens when a person buys shares in a mutual fund?

Which of the following bond buyers did NOT buy the bond that best met his or her objective?

If there is surplus of loanable funds, what is most likely to happen?

What would an increase in the budget deficit most likely do to investment spending?

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

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

In a closed economy, what does (T - G) represent?

Generally, when economists talk of the "interest rate," what are they talking about?

What are junk bonds?

Which statement best explains why the debt-to-GDP ratio is important?

The sale of stocks or bonds to raise money is known as equity finance.

Which equation will always represent GDP in an open economy?

-Refer to Table 8-1. In dollar terms, which company paid the highest dividend per share?

If people become less optimistic about the future earnings of Hyde Park Records Corporation, the price of stock in the company will fall.

-Refer to Table 8-1. What were company D's earnings per share?

If Parliament instituted an investment tax credit, what would most likely happen to the interest rate and saving?

Henry buys a bond issued by Disney, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 8: Saving, Investment, and the Financial System

Suppose Sarah Lee Corporation stock has a P/E ratio of 10. Which statement best describes this P/E ratio?

Suppose that the government finds a major defect in one of a company's products and demands that it be taken off the market. What would we expect?

What happens when a person buys shares in a mutual fund?

Which of the following bond buyers did NOT buy the bond that best met his or her objective?

If there is surplus of loanable funds, what is most likely to happen?

What would an increase in the budget deficit most likely do to investment spending?

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

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

In a closed economy, what does (T - G) represent?

Generally, when economists talk of the "interest rate," what are they talking about?

What are junk bonds?

Which statement best explains why the debt-to-GDP ratio is important?

The sale of stocks or bonds to raise money is known as equity finance.

Which equation will always represent GDP in an open economy?

-Refer to Table 8-1. In dollar terms, which company paid the highest dividend per share?

If people become less optimistic about the future earnings of Hyde Park Records Corporation, the price of stock in the company will fall.

-Refer to Table 8-1. What were company D's earnings per share?

If Parliament instituted an investment tax credit, what would most likely happen to the interest rate and saving?

Henry buys a bond issued by Disney, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary Policy on Aggregate Demand

The Influence of Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters