Exam 8: Saving, Investment, and the Financial System

You are required to testify before Parliament concerning the effects of an increase in the government surplus. What is the best thing for you to say?

The only province not currently collecting a sales tax is Alberta. What is a likely result from the recently elected government's proposal to reduce income taxes and introduce a sales tax?

If the current market interest rate for loanable funds is below the equilibrium level, what is most likely to happen?

To make the financial markets safer, the Canadian government proposes tightening the rules for making a loan. Such rules require higher borrower creditworthiness and shorter pay-back periods. Analyze this proposal in a supply and demand for loanable funds model.

Suppose the Steamhot yoga chain has revenues of $75 million, costs of $25 million, and currently has issued 20 million shares selling at $50 each. Compute the price/earnings ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price/earnings ratio indicate?

National saving is equal to Y - T - C.

What are the basic differences between bonds and stocks?

Which statement best defines a closed economy?

Suppose that in a closed economy GDP is equal to 18,000, taxes are equal to 1500, consumption is equal to 8800, and government expenditures are equal to 2200. What is national saving?

Bella Roma Italian Market sells common stock. What type of financing are they using?

Joe's Better Bike Company has $5 million in cash, which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. How does this fact influence the company's decision?

Suppose a developing country decides to institute an investment tax credit. As a result, what is most likely to happen?

What does the slope of the supply of loanable funds curve represent?

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 60 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What was investment in San Lucretia?

-Refer to Table 8-4. Supposing the market for loanable funds is in equilibrium, what is the quantity of funds demanded?

What does a higher interest rate induce people to do?

As a money management fee, how much do mutual funds usually charge their customers?

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Explain why the demand for loanable funds slopes downward and the supply of loanable funds slopes upward.

-Refer to the Table 8-3. Supposing equilibrium exists in the market for loanable funds, what is the quantity of funds supplied in this market?