Exam 8: Saving, Investment, and the Financial System

Table 8-2 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-2. Which company had the highest dollar dividend?

Which statement best defines a mutual fund?

Suppose that interest rates fall and investment falls. Which statement best explains these changes?

What does a general, persistent decline in stock prices signal about an economy?

Generally, if people expect a company to have higher future profits, the price of the stock will be driven down.

During the financial crisis of 2008-2009, the risk of lending and borrowing increased significantly. a) Use the supply and demand for loanable funds model to analyze the effects of increased risk on savings, investment, and the interest rate. b) Assume the following demand and supply of loanable funds equations: QD = 160 - 10r, and QS = -20 + 20r. How would you modify these equations to include risk

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

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.

Assuming that other things remain the same, if the government increases transfer payments to households, what will most likely happen?

Suppose that the government were to replace the income tax with a consumption tax. What would happen to the interest rate and investment, respectively?

Many economists believe that if the current income tax were replaced with a consumption tax, then saving, investment, economic growth, and the standard of living of Canadians would increase.

What do shareholders receive when they are paid a dividend?

A company releases the following information: Number of shares (in thousands) = 7500 Dividend = $0.12 Dividend yield = 0.7% Profit (in thousands) = $1500 a. Calculate the share price. b. Calculate the market value of the firm (the total value of the firm's stock). c. Calculate earnings per share and the P/E ratio. d. Is this company expensive relative to its earnings

What does stock represent?

Ian has the choice of two bonds, one that pays 4 percent interest and one that pays 86 percent interest. Which of the following situations is most likely?

Which bond is most likely to default?

The model of the market for loanable funds shows that an investment tax credit will cause interest rates and investment to rise. Yet our model of how investors behave claims that higher interest rates lead to lower investment. How can these two opposing statements be reconciled

Other things the same, the higher the rate of saving and investment in a country, the higher the standard of living will be.

In a closed economy, what is public saving?

The demand for loanable funds comes from saving, and the supply of loanable funds comes from investment.