Question 1

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. 
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.

Question 2

Figure 26-3
The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
​  
-Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called

Accepted Answer

A) a decrease in the quantity of loanable funds demanded. 
B) an increase in the demand for loanable funds. 
C) an increase in the quantity of loanable funds demanded. 
D) a decrease in the demand for loanable funds. 
A) a decrease in the quantity of loanable funds demanded. 
B) an increase in the demand for loanable funds. 
C) an increase in the quantity of loanable funds demanded. 
D) a decrease in the demand for loanable funds.

Question 3

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following statements is correct?

Accepted Answer

A) The expected future profitability of a corporation influences the demand for its stock. 
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D) A corporation is paid every time its shares of stock are traded organized stock exchanges. 
A) The expected future profitability of a corporation influences the demand for its stock. 
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance. 
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation. 
D) A corporation is paid every time its shares of stock are traded organized stock exchanges.

Question 5

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A) invest in physical capital. 
B) use equity finance. 
C) sell bonds. 
D) purchase bonds. 
A) invest in physical capital. 
B) use equity finance. 
C) sell bonds. 
D) purchase bonds.

Question 6

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 7

Long-term bonds are

Accepted Answer

A) riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B) riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D) less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
A) riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
B) riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. 
C) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. 
D) less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 8

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 9

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Accepted Answer

The supply of loanable funds w

Question 10

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

Accepted Answer

A) Stock markets 
B) Monetary institutions 
C) Financial markets 
D) Financial intermediaries 
A) Stock markets 
B) Monetary institutions 
C) Financial markets 
D) Financial intermediaries

Question 11

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 12

Figure 26-4
This figure shows the loanable funds market for a closed economy.   ​
-Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to

Accepted Answer

A) increase to $180 and the interest rate to fall to 4% (point 
D) . 
B) increase to $180 and the interest rate to rise to 12% (point 
C) . 
C) decrease to $60 and the interest rate to fall to 4% (point 
B) . 
D) decrease to $60 and the interest rate to rise to 12% (point 
E) . 
A) increase to $180 and the interest rate to fall to 4% (point 
D) . 
B) increase to $180 and the interest rate to rise to 12% (point 
C) . 
C) decrease to $60 and the interest rate to fall to 4% (point 
B) . 
D) decrease to $60 and the interest rate to rise to 12% (point 
E) .

Question 13

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 14

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 15

Consider the expressions T − G and Y − T − C. Which of the following statements is correct?

Accepted Answer

A) Each one of these is equal to national saving. 
B) Each one of these is equal to public saving. 
C) The first of these is private saving; the second one is public saving. 
D) The first of these is public saving; the second one is private saving. 
A) Each one of these is equal to national saving. 
B) Each one of these is equal to public saving. 
C) The first of these is private saving; the second one is public saving. 
D) The first of these is public saving; the second one is private saving.

Question 16

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T

Question 17

If consumers reduced their spending, what would happen to the interest rate and investment?

Accepted Answer

The interest rate wo

Question 18

A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Accepted Answer

The answer of A _____ does not engage in international...

Question 19

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Accepted Answer

A) True 
 B)False

Question 20

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

A) interest rates and the equilibrium quantity of loanable funds rise. 
B) interest rates rise and the equilibrium quantity of loanable funds fall. 
C) interest rates fall and the equilibrium quantity of loanable funds rise. 
D) interest rates and the equilibrium quantity of loanable funds fall. 
A) interest rates and the equilibrium quantity of loanable funds rise. 
B) interest rates rise and the equilibrium quantity of loanable funds fall. 
C) interest rates fall and the equilibrium quantity of loanable funds rise. 
D) interest rates and the equilibrium quantity of loanable funds fall.

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

Figure 26-3 The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. ​ -Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called

Mutual funds are a type of financial intermediary.

Which of the following statements is correct?

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Corporations receive no proceeds from the resale of their stock.

Long-term bonds are

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

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

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

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Figure 26-4 This figure shows the loanable funds market for a closed economy. ​ -Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to

When economists refer to investment, they mean the purchasing of stocks and bonds and other types of saving.

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Consider the expressions T − G and Y − T − C. Which of the following statements is correct?

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

If consumers reduced their spending, what would happen to the interest rate and investment?

A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 26-3 The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. A shift of the demand curve from D₁ to D₂ is called

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

Figure 26-4 This figure shows the loanable funds market for a closed economy. -Refer to Figure 26-4. Starting at point A, a change in tax laws that encouraged households to save more would likely cause the quantity of loanable funds traded to