Question 1

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 2

Financial intermediaries are

Accepted Answer

A) the same as financial markets. 
B) individuals who make profits by buying a stock low and selling it high. 
C) a more general name for financial assets such as stocks, bonds, and checking accounts. 
D) financial institutions through which savers can indirectly provide funds to borrowers. 
A) the same as financial markets. 
B) individuals who make profits by buying a stock low and selling it high. 
C) a more general name for financial assets such as stocks, bonds, and checking accounts. 
D) financial institutions through which savers can indirectly provide funds to borrowers.

Question 3

Katleen is considering expanding her jewelry shop. If interest rates rise she is

Accepted Answer

A) less likely to expand.This illustrates why the supply of loanable funds slopes downward. 
B) more likely to expand.This illustrates why the supply of loanable funds slopes upward. 
C) less likely to expand.This illustrates why the demand for loanable funds slopes downward. 
D) more likely to expand.This illustrates why the demand for loanable funds slopes upward. 
A) less likely to expand.This illustrates why the supply of loanable funds slopes downward. 
B) more likely to expand.This illustrates why the supply of loanable funds slopes upward. 
C) less likely to expand.This illustrates why the demand for loanable funds slopes downward. 
D) more likely to expand.This illustrates why the demand for loanable funds slopes upward.

Question 4

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

When someone borrows to purchase capital goods, he is using someone else's _____ to fund his _____.

Accepted Answer

The answer of When someone borrows to purchase capital goods,...

Question 7

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 8

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

The answer of Bond A and Bond B are identical...

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Suppose private saving in a closed economy is $15b and investment is $7b.

Accepted Answer

A) National saving must equal $15b. 
B) Public saving must equal $8b. 
C) The government budget surplus must equal $8b. 
D) The government budget deficit must equal $8b. 
A) National saving must equal $15b. 
B) Public saving must equal $8b. 
C) The government budget surplus must equal $8b. 
D) The government budget deficit must equal $8b.

Question 11

To start a business delivering documents, you need to purchase cell phones, bicycles, and desks.

Accepted Answer

A) These purchases are called capital investment.Raising the funds to purchase them makes you a borrower. 
B) These purchases are called capital investment.Raising the funds to purchase them makes you a saver. 
C) These purchases are called consumption.Raising the funds to purchase them makes you a saver. 
D) These purchases are called consumption.Raising the funds to purchase them makes you a borrower. 
A) These purchases are called capital investment.Raising the funds to purchase them makes you a borrower. 
B) These purchases are called capital investment.Raising the funds to purchase them makes you a saver. 
C) These purchases are called consumption.Raising the funds to purchase them makes you a saver. 
D) These purchases are called consumption.Raising the funds to purchase them makes you a borrower.

Question 12

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Accepted Answer

A reduction in transfer paymen

Question 13

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Accepted Answer

A) S = I. 
B) S = 0. 
C) I = S + NX. 
D) S = I + NX. 
A) S = I. 
B) S = 0. 
C) I = S + NX. 
D) S = I + NX.

Question 14

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Accepted Answer

A) Because they have the same term to maturity the interest rates should be the same. 
B) Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C) Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D) It is not possible to say if one bond has a higher interest rate than the other. 
A) Because they have the same term to maturity the interest rates should be the same. 
B) Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate. 
C) Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. 
D) It is not possible to say if one bond has a higher interest rate than the other.

Question 15

Other things the same, a higher interest rate induces people to

Accepted Answer

A) save more, so the supply of loanable funds slopes upward. 
B) save less, so the supply of loanable funds slopes downward. 
C) invest more, so the supply of loanable funds slopes upward. 
D) invest less, so the supply of loanable funds slopes downward. 
A) save more, so the supply of loanable funds slopes upward. 
B) save less, so the supply of loanable funds slopes downward. 
C) invest more, so the supply of loanable funds slopes upward. 
D) invest less, so the supply of loanable funds slopes downward.

Question 16

Given that Monica's income exceeds her expenditures, Monica is best described as a

Accepted Answer

A) saver or as a supplier of funds. 
B) borrower or as a demander of funds. 
C) saver or as a demander of funds. 
D) borrower or as a supplier of funds. 
A) saver or as a supplier of funds. 
B) borrower or as a demander of funds. 
C) saver or as a demander of funds. 
D) borrower or as a supplier of funds.

Question 17

What is a mutual fund?

Accepted Answer

An institution that sells shar

Question 18

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Accepted Answer

A) Corporate bond, municipal bond, U.S.government bond 
B) Corporate bond, U.S.government bond, municipal bond 
C) Municipal bond, U.S.government bond, corporate bond 
D) U.S.government bond, municipal bond, corporate bond 
A) Corporate bond, municipal bond, U.S.government bond 
B) Corporate bond, U.S.government bond, municipal bond 
C) Municipal bond, U.S.government bond, corporate bond 
D) U.S.government bond, municipal bond, corporate bond

Question 19

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Accepted Answer

A) An increase in the supply of or a decrease in the demand for loanable funds 
B) An increase in the supply of or an increase in the demand for loanable funds 
C) A decrease in the supply of or a decrease in the demand for loanable funds 
D) A decrease in the supply of or an increase in the demand for loanable funds 
A) An increase in the supply of or a decrease in the demand for loanable funds 
B) An increase in the supply of or an increase in the demand for loanable funds 
C) A decrease in the supply of or a decrease in the demand for loanable funds 
D) A decrease in the supply of or an increase in the demand for loanable funds

Exam 26: Saving, Investment, and the Financial System

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Financial intermediaries are

Katleen is considering expanding her jewelry shop. If interest rates rise she is

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

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

When someone borrows to purchase capital goods, he is using someone else's _____ to fund his _____.

A government may use deficit financing to smooth tax rates over time.

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

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

Suppose private saving in a closed economy is $15b and investment is $7b.

To start a business delivering documents, you need to purchase cell phones, bicycles, and desks.

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Other things the same, a higher interest rate induces people to

Given that Monica's income exceeds her expenditures, Monica is best described as a

What is a mutual fund?

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

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

When someone borrows to purchase capital goods, he is using someone else's _ to fund his _.