Question 1

What is the effect of an increase in the tax rate on interest income on the supply of and the demand for loanable funds?

Accepted Answer

A)  The supply curve shifts to the left, while the demand curve remains unchanged. 
B)  The supply curve shifts to the right, while the demand curve remains unchanged. 
C)  The supply curve remains unchanged, while the demand curve shifts to the left. 
D)  The supply curve remains unchanged, while the demand curve shifts to the right. 
A)  The supply curve shifts to the left, while the demand curve remains unchanged. 
B)  The supply curve shifts to the right, while the demand curve remains unchanged. 
C)  The supply curve remains unchanged, while the demand curve shifts to the left. 
D)  The supply curve remains unchanged, while the demand curve shifts to the right.

Question 2

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for

Question 3

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, what would most likely happen?

Accepted Answer

A)  Both the interest rate and saving would decrease. 
B)  The interest rate would decrease, and saving would increase. 
C)  The interest rate would increase, and saving would decrease. 
D)  Both the interest rate and saving would increase. 
A)  Both the interest rate and saving would decrease. 
B)  The interest rate would decrease, and saving would increase. 
C)  The interest rate would increase, and saving would decrease. 
D)  Both the interest rate and saving would increase.

Question 4

Bailey wants to start her own dental practice, but her expenditures exceed her income. Which statement best describes Lucy?

Accepted Answer

A)  She is a saver who demands money from the financial system. 
B)  She is a saver who supplies money to the financial system. 
C)  She is a borrower who demands money from the financial system. 
D)  She is a borrower who supplies money to the financial system. 
A)  She is a saver who demands money from the financial system. 
B)  She is a saver who supplies money to the financial system. 
C)  She is a borrower who demands money from the financial system. 
D)  She is a borrower who supplies money to the financial system.

Question 5

Country B has private savings of $60 billion and investment expenditures of $50 billion. How much is Country B's deficit?

Accepted Answer

A)  -$20 billion 
B)  -$10 billion 
C)  $10 billion 
D)  $20 billion 
A)  -$20 billion 
B)  -$10 billion 
C)  $10 billion 
D)  $20 billion

Question 6

Reggie's income exceeds his expenditures. Which statement best describes Reggie?

Accepted Answer

A)  He is a saver who demands money from the financial system. 
B)  He is a saver who supplies money to the financial system. 
C)  He is a borrower who demands money from the financial system. 
D)  He is a borrower who supplies money to the financial system. 
A)  He is a saver who demands money from the financial system. 
B)  He is a saver who supplies money to the financial system. 
C)  He is a borrower who demands money from the financial system. 
D)  He is a borrower who supplies money to the financial system.

Question 7

Your cousin wants to buy either stock or bonds in Holistic Healing Inc., but he isn't sure which to buy. Explain how each of his quotes below should affect his choice between the stock and the bond.
a. "I have reason to believe that the company will be announcing a new holistic remedy that has amazing health benefits."
b. "I would like to tell people I am part owner of Holistic Healing Inc."
c. "I do not want to take on much risk."

Accepted Answer

a. Presumably, when this happens, unless

Question 8

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 earnings per share?

Accepted Answer

A)  P 
B)  Q 
C)  R 
D)  S 
A)  P 
B)  Q 
C)  R 
D)  S

Question 9

If Parliament instituted an investment tax credit, what would most likely happen to the interest rate and saving?

Accepted Answer

A)  The interest rate would rise, and saving would rise. 
B)  The interest rate would fall, and saving would fall. 
C)  The interest rate would rise, and saving would fall. 
D)  The interest rate would fall, and saving would rise. 
A)  The interest rate would rise, and saving would rise. 
B)  The interest rate would fall, and saving would fall. 
C)  The interest rate would rise, and saving would fall. 
D)  The interest rate would fall, and saving would rise.

Question 10

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

Accepted Answer

A)  They are using equity financing, and the return shareholders earn is fixed. 
B)  They are using equity financing, and the return shareholders earn depends on how profitable the company is. 
C)  They are using debt financing, and the return debt holders earn is fixed. 
D)  They are using debt financing, and the return debt holders earn depends on how profitable the company is. 
A)  They are using equity financing, and the return shareholders earn is fixed. 
B)  They are using equity financing, and the return shareholders earn depends on how profitable the company is. 
C)  They are using debt financing, and the return debt holders earn is fixed. 
D)  They are using debt financing, and the return debt holders earn depends on how profitable the company is.

Question 11

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 lowest dollar dividend?

Accepted Answer

A)  P 
B)  Q 
C)  R 
D)  S 
A)  P 
B)  Q 
C)  R 
D)  S

Question 12

How is a perpetuity distinguished from other bonds?

Accepted Answer

A)  It pays continuously compounded interest. 
B)  It pays interest only when it matures. 
C)  It never matures. 
D)  The principal is repaid over the term of the bond rather than as a lump sum. 
A)  It pays continuously compounded interest. 
B)  It pays interest only when it matures. 
C)  It never matures. 
D)  The principal is repaid over the term of the bond rather than as a lump sum.

Question 13

If there is surplus 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 14

What will happen to the interest on a bond as the bond's term increases?

Accepted Answer

A)  The bond will pay less interest because it has less risk. 
B)  The bond will pay less interest because it has more risk. 
C)  The bond will pay more interest because it has more risk. 
D)  The bond will pay more interest because it has less risk. 
A)  The bond will pay less interest because it has less risk. 
B)  The bond will pay less interest because it has more risk. 
C)  The bond will pay more interest because it has more risk. 
D)  The bond will pay more interest because it has less risk.

Question 15

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

Accepted Answer

A)  Interest rates would rise and savings would fall. 
B)  Both interest rates and savings would rise. 
C)  Both interest rates and savings would fall. 
D)  Interest rates would fall and savings would rise. 
A)  Interest rates would rise and savings would fall. 
B)  Both interest rates and savings would rise. 
C)  Both interest rates and savings would fall. 
D)  Interest rates would fall and savings would rise.

Question 16

Which of the two bonds in each example would you expect to pay the higher interest rate
 Explain why.
a. a Canadian government bond or a bond issued by the government of Turkey
b. a government of Canada bond or a municipal bond of the same face value and term
c. a 6-month Treasury bill or a 20-year bond
d. a Canadian National Railway Company bond or a bond issued by a new fitness clothing company

Accepted Answer

a. The Turkish government bond would lik

Question 17

Sylvia is interested only in the rate of interest and is willing to take a great deal of risk in exchange for a high return. Which bond should she look for?

Accepted Answer

A)  federal bonds with short terms 
B)  territorial bonds with long terms 
C)  corporate bonds with short terms 
D)  corporate bonds with long terms 
A)  federal bonds with short terms 
B)  territorial bonds with long terms 
C)  corporate bonds with short terms 
D)  corporate bonds with long terms

Question 18

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy

Question 19

Queen City Sausage Ltd. stock is selling at $40 per share. It has retained earnings of $1.50 per share, and dividends of $0.50 per share. What is the price/earnings ratio?

Accepted Answer

A)  0.06 
B)  16 
C)  20 
D)  100 
A)  0.06 
B)  16 
C)  20 
D)  100

Question 20

Henry buys a bond issued by Bombardier, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Accepted Answer

A)  Henry and Bombardier are both investing. 
B)  Henry and Bombardier are both saving. 
C)  Henry is investing; Bombardier is saving. 
D)  Henry is saving; Bombardier is investing. 
A)  Henry and Bombardier are both investing. 
B)  Henry and Bombardier are both saving. 
C)  Henry is investing; Bombardier is saving. 
D)  Henry is saving; Bombardier is investing.

What is the effect of an increase in the tax rate on interest income on the supply of and the demand for loanable funds?

Draw and label a graph showing equilibrium in the market for loanable funds.

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, what would most likely happen?

Bailey wants to start her own dental practice, but her expenditures exceed her income. Which statement best describes Lucy?

Country B has private savings of $60 billion and investment expenditures of $50 billion. How much is Country B's deficit?

Reggie's income exceeds his expenditures. Which statement best describes Reggie?

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 earnings per share?

If Parliament instituted an investment tax credit, what would most likely happen to the interest rate and saving?

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

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 lowest dollar dividend?

How is a perpetuity distinguished from other bonds?

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

What will happen to the interest on a bond as the bond's term increases?

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

Sylvia is interested only in the rate of interest and is willing to take a great deal of risk in exchange for a high return. Which bond should she look for?

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.

Queen City Sausage Ltd. stock is selling at $40 per share. It has retained earnings of $1.50 per share, and dividends of $0.50 per share. What is the price/earnings ratio?

Henry buys a bond issued by Bombardier, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

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 the effect of an increase in the tax rate on interest income on the supply of and the demand for loanable funds?

Draw and label a graph showing equilibrium in the market for loanable funds.

Suppose a country has a consumption tax that is similar to a provincial sales tax. If its government eliminates the consumption tax and replaces it with an income tax that includes an income tax on interest from savings, what would most likely happen?

Bailey wants to start her own dental practice, but her expenditures exceed her income. Which statement best describes Lucy?

Country B has private savings of $60 billion and investment expenditures of $50 billion. How much is Country B's deficit?

Reggie's income exceeds his expenditures. Which statement best describes Reggie?

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 earnings per share?

If Parliament instituted an investment tax credit, what would most likely happen to the interest rate and saving?

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

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 lowest dollar dividend?

How is a perpetuity distinguished from other bonds?

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

What will happen to the interest on a bond as the bond's term increases?

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

Sylvia is interested only in the rate of interest and is willing to take a great deal of risk in exchange for a high return. Which bond should she look for?

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.

Queen City Sausage Ltd. stock is selling at $40 per share. It has retained earnings of $1.50 per share, and dividends of $0.50 per share. What is the price/earnings ratio?

Henry buys a bond issued by Bombardier, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

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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