Question 1

What is a secondary advantage of mutual funds?

Accepted Answer

A)  They allow an investor to avoid investment charges and fees. 
B)  They give ordinary people access to loanable funds for investing. 
C)  They usually outperform stock market indexes. 
D)  They give ordinary people access to the skills of professional money managers. 
A)  They allow an investor to avoid investment charges and fees. 
B)  They give ordinary people access to loanable funds for investing. 
C)  They usually outperform stock market indexes. 
D)  They give ordinary people access to the skills of professional money managers. D

Question 2

In the national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving

Accepted Answer

Starting with Y = C + I + G, subtract C and G from both sides, obtaining Y - C - G = I. The left-hand side represents national saving, the total income of the economy that remains after paying for consumption and government purchases. Hence, substituting S for Y - C - G, we obtain S = I. To separate private and public saving, add and subtract T in S = Y - C - G, obtaining S = (Y - T - C)+ (T - G). Here, (Y - T - C)represents private saving, the part of disposable income (Y - T)left after subtracting consumption, and (T - G)represents the government budget surplus (i.e., public saving).

Question 3

If the current market interest rate for loanable funds is above the equilibrium level, what would we expect to happen?

Accepted Answer

A)  Because there is a surplus of loanable funds, the interest rate will rise. 
B)  Because there is a shortage of loanable funds, the interest rate will rise. 
C)  Because there is a shortage of loanable funds, the interest rate will fall. 
D)  Because there is a surplus of loanable funds, the interest rate will fall. 
A)  Because there is a surplus of loanable funds, the interest rate will rise. 
B)  Because there is a shortage of loanable funds, the interest rate will rise. 
C)  Because there is a shortage of loanable funds, the interest rate will fall. 
D)  Because there is a surplus of loanable funds, the interest rate will fall. D

Question 4

Other things being constant, when a business issues more stock, what happens?

Accepted Answer

A)  The supply of the stock is greater and thus the price will fall. 
B)  The supply of the stock is less and thus the price will rise. 
C)  The demand for the stock is greater and thus the price will rise. 
D)  The demand for the stock is less and thus the price will fall. 
A)  The supply of the stock is greater and thus the price will fall. 
B)  The supply of the stock is less and thus the price will rise. 
C)  The demand for the stock is greater and thus the price will rise. 
D)  The demand for the stock is less and thus the price will fall.

Question 5

If the nominal interest rate is 14 percent and the real interest rate is 2 percent, what is the inflation rate?

Accepted Answer

A)  4 percent 
B)  6 percent 
C)  12 percent 
D)  16 percent 
A)  4 percent 
B)  6 percent 
C)  12 percent 
D)  16 percent

Question 6

Which statement best defines the nominal interest rate?

Accepted Answer

A)  It is the interest rate corrected for inflation. 
B)  It is the interest rate as usually reported by banks. 
C)  It is the real rate of return to the lender. 
D)  It is the real cost of borrowing to the borrower. 
A)  It is the interest rate corrected for inflation. 
B)  It is the interest rate as usually reported by banks. 
C)  It is the real rate of return to the lender. 
D)  It is the real cost of borrowing to the borrower.

Question 7

If there is shortage 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 8

If a share of stock in Skylight Chili Ltd. sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price/earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 9

When a country saves a larger portion of its GDP, will it have more or less investment?

Accepted Answer

A)  It will have less investment, and so it will have more capital and higher productivity. 
B)  It will have less investment, and so it will have less capital and higher productivity. 
C)  It will have more investment, and so it will have more capital and higher productivity. 
D)  It will have more investment, and so it will have less capital and higher productivity. 
A)  It will have less investment, and so it will have more capital and higher productivity. 
B)  It will have less investment, and so it will have less capital and higher productivity. 
C)  It will have more investment, and so it will have more capital and higher productivity. 
D)  It will have more investment, and so it will have less capital and higher productivity.

Question 10

What is the effect of an increase in budget deficit?

Accepted Answer

A)  It changes the supply of loanable funds. 
B)  It changes the demand for loanable funds. 
C)  It changes both the supply of and demand for loanable funds. 
D)  It does not influence the supply of or the demand for loanable funds. 
A)  It changes the supply of loanable funds. 
B)  It changes the demand for loanable funds. 
C)  It changes both the supply of and demand for loanable funds. 
D)  It does not influence the supply of or the demand for loanable funds.

Question 11

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

Accepted Answer

A)  national saving 
B)  government tax revenue 
C)  public saving 
D)  private saving 
A)  national saving 
B)  government tax revenue 
C)  public saving 
D)  private saving

Question 12

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?

Accepted Answer

A)  Shareholders are paid before bondholders. 
B)  Shareholders are paid after bondholders. 
C)  Shareholders and bondholders are paid proportional shares of the company's assets. 
D)  Shareholders receive all the company's assets. 
A)  Shareholders are paid before bondholders. 
B)  Shareholders are paid after bondholders. 
C)  Shareholders and bondholders are paid proportional shares of the company's assets. 
D)  Shareholders receive all the company's assets.

Question 13

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 14

Suppose that interest rates and investment both rise. Which statement best explains these changes?

Accepted Answer

A)  The government is running a larger deficit. 
B)  The government has instituted an investment tax credit. 
C)  The government has replaced the income tax with a consumption tax. 
D)  The government has reduced its deficit. 
A)  The government is running a larger deficit. 
B)  The government has instituted an investment tax credit. 
C)  The government has replaced the income tax with a consumption tax. 
D)  The government has reduced its deficit.

Question 15

Suppose the following equations give the demand and supply for loanable funds in billions of dollars; r is the real interest rate in percentage points (e.g., if the interest rate is 5 percent, r = 5):
QD = 160 - 10r
QS = -20 + 20r
Now, assume the government wishes to stimulate consumption, and imposes a tax on interest earnings of 40 percent.
a) How do the demand and supply equations change to reflect the interest earnings tax
b) Calculate the new equilibrium interest rate and quantity of loanable funds. (Compare this to the zero-tax equilibrium.)
c) Calculate the changes in consumer and producer surplus due to the tax. Who gains and who loses from the tax

Accepted Answer

a)The new demand and supply for loanable

Question 16

Suppose the following equations give the demand and supply for loanable funds in billions of dollars; r is the real interest rate in percentage points (e.g., if the interest rate is 5 percent, r = 5):
QD = 160-10r
QS = -20 + 20r
a) How do the demand and supply equations change if the government deficit increased by $5 billion
b) Calculate the new equilibrium interest rate and quantity of loanable funds. (Compare this to the zero-deficit equilibrium.)
c) Calculate the changes in consumer and producer surplus due to the increase in government deficit. Who gains and who loses from the change in government deficit

Accepted Answer

a)Public savings decreases by the amount

Question 17

Consider a closed economy. Use the supply and demand for loanable funds model to predict the effects of the following events on interest rates and investment.
a. The government introduces a tax credit for savings accounts of up to $5000 per year.
b. The government introduces a tax credit for savings accounts of up to $5000 per year, and at the same time it repeals an investment tax exemption provision.
c. The government raises the tax rates.
d. The government issues bonds worth $10 billion.

Accepted Answer

a. Since saving is now less taxed, one w

Question 18

If Parliament reduced the tax rate on interest income, what would most likely happen to investment and saving?

Accepted Answer

A)  Investment would increase, and saving would decrease. 
B)  Investment would decrease, and saving would increase. 
C)  Investment and saving would both increase. 
D)  Investment and saving would both decrease. 
A)  Investment would increase, and saving would decrease. 
B)  Investment would decrease, and saving would increase. 
C)  Investment and saving would both increase. 
D)  Investment and saving would both decrease.

Question 19

If the nominal interest rate is 8 percent and the inflation rate is 4 percent, what is the real interest rate?

Accepted Answer

A)  0.44 percent 
B)  4 percent 
C)  6 percent 
D)  12 percent 
A)  0.44 percent 
B)  4 percent 
C)  6 percent 
D)  12 percent

Question 20

Stock in Synergistic Corporation is selling at $20 per share. It had earnings of $4 a share and a dividend yield of 4 percent. What is the dividend?

Accepted Answer

A)  $0.04 
B)  $0.20 
C)  $1.00 
D)  $120 
A)  $0.04 
B)  $0.20 
C)  $1.00 
D)  $120

What is a secondary advantage of mutual funds?

In the national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving

If the current market interest rate for loanable funds is above the equilibrium level, what would we expect to happen?

Other things being constant, when a business issues more stock, what happens?

If the nominal interest rate is 14 percent and the real interest rate is 2 percent, what is the inflation rate?

Which statement best defines the nominal interest rate?

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

If a share of stock in Skylight Chili Ltd. sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price/earnings ratio is 15.

When a country saves a larger portion of its GDP, will it have more or less investment?

What is the effect of an increase in budget deficit?

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

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?

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

Suppose that interest rates and investment both rise. Which statement best explains these changes?

If Parliament reduced the tax rate on interest income, what would most likely happen to investment and saving?

If the nominal interest rate is 8 percent and the inflation rate is 4 percent, what is the real interest rate?

Stock in Synergistic Corporation is selling at $20 per share. It had earnings of $4 a share and a dividend yield of 4 percent. What is the dividend?

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 and 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

What is a secondary advantage of mutual funds?

In the national income accounting identity showing the equality between national saving and investment, what is the representation of private saving and what is the representation of public saving

If the current market interest rate for loanable funds is above the equilibrium level, what would we expect to happen?

Other things being constant, when a business issues more stock, what happens?

If the nominal interest rate is 14 percent and the real interest rate is 2 percent, what is the inflation rate?

Which statement best defines the nominal interest rate?

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

If a share of stock in Skylight Chili Ltd. sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price/earnings ratio is 15.

When a country saves a larger portion of its GDP, will it have more or less investment?

What is the effect of an increase in budget deficit?

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

If Huedepool Beer runs into financial difficulty, how are bondholders and shareholders paid?

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

Suppose that interest rates and investment both rise. Which statement best explains these changes?

If Parliament reduced the tax rate on interest income, what would most likely happen to investment and saving?

If the nominal interest rate is 8 percent and the inflation rate is 4 percent, what is the real interest rate?

Stock in Synergistic Corporation is selling at $20 per share. It had earnings of $4 a share and a dividend yield of 4 percent. What is the dividend?

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 and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters