Question 1

Use the following table to answer the following questions.
Table 26-2
  
-Refer to Table 26-2.Which company had the highest earnings per share?

Accepted Answer

A) Boeing Co. 
B) Eli Lilly and Co. 
C) H.J.Heinz and Co. 
D) Kellog Co. 
A) Boeing Co. 
B) Eli Lilly and Co. 
C) H.J.Heinz and Co. 
D) Kellog Co. C

Question 2

When the government runs a budget deficit,

Accepted Answer

A) interest rates are lower than they would be if the budget were balanced. 
B) national saving is higher than it would be if the budget were balanced. 
C) investment is lower than it would be if the budget were balanced. 
D) All of the above are correct. 
A) interest rates are lower than they would be if the budget were balanced. 
B) national saving is higher than it would be if the budget were balanced. 
C) investment is lower than it would be if the budget were balanced. 
D) All of the above are correct. C

Question 3

Suppose that in a closed economy GDP is $11 trillion,consumption is $7 trillion,taxes are $3 trillion and the government runs a surplus of $1 trillion.What are private saving and national saving?

Accepted Answer

A) $4 trillion and $1 trillion 
B) $4 trillion and $5 trillion 
C) $1 trillion and $2 trillion 
D) $1 trillion and $1 trillion 
A) $4 trillion and $1 trillion 
B) $4 trillion and $5 trillion 
C) $1 trillion and $2 trillion 
D) $1 trillion and $1 trillion C

Question 4

An increase in the budget deficit

Accepted Answer

A) makes investment spending fall. 
B) makes investment spending rise. 
C) does not affect investment spending. 
D) may increase, decrease, or not affect investment spending. 
A) makes investment spending fall. 
B) makes investment spending rise. 
C) does not affect investment spending. 
D) may increase, decrease, or not affect investment spending.

Question 5

A dividend yield is the

Accepted Answer

A) dividend as a percentage of the price per share. 
B) stock price as a percentage of the dividend. 
C) dividend as a percentage of the retained earnings per share. 
D) retained earnings per share as the percentage of the dividend. 
A) dividend as a percentage of the price per share. 
B) stock price as a percentage of the dividend. 
C) dividend as a percentage of the retained earnings per share. 
D) retained earnings per share as the percentage of the dividend.

Question 6

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we'd expect this reduction in the budget deficit to have

Accepted Answer

A) raised interest rates and investment. 
B) raised interest rates and reduced investment. 
C) reduced interest rates and raised investment. 
D) reduced interest rates and investment. 
A) raised interest rates and investment. 
B) raised interest rates and reduced investment. 
C) reduced interest rates and raised investment. 
D) reduced interest rates and investment.

Question 7

A checking deposit functions as

Accepted Answer

A) a medium of exchange and a store of value. 
B) a medium of exchange, but not a store of value. 
C) a store of value, but not a medium of exchange. 
D) neither a medium of exchange nor a store of value. 
A) a medium of exchange and a store of value. 
B) a medium of exchange, but not a store of value. 
C) a store of value, but not a medium of exchange. 
D) neither a medium of exchange nor a store of value.

Question 8

Suppose a country has a consumption tax that is similar to a state 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 happens?

Accepted Answer

A) There is no change in the interest rate or saving. 
B) The interest rate decreases and saving increases. 
C) The interest rate increases and saving decreases. 
D) None of the above is correct. 
A) There is no change in the interest rate or saving. 
B) The interest rate decreases and saving increases. 
C) The interest rate increases and saving decreases. 
D) None of the above is correct.

Question 9

If there is a shortage of loanable funds,then

Accepted Answer

A) the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B) the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C) the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D) the quantity supplied is greater than the quantity demanded and the interest rate will fall. 
A) the quantity demanded is greater than the quantity supplied and the interest rate will rise. 
B) the quantity demanded is greater than the quantity supplied and the interest rate will fall. 
C) the quantity supplied is greater than the quantity demanded and the interest rate will rise. 
D) the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 10

Other things the same,which bond would you expect to pay the lowest interest rate?

Accepted Answer

A) a bond issued by a state with a very good credit rating 
B) a bond issued by the U.S.government 
C) a bond issued by a fairly new company doing genetic research 
D) a bond issued by Nabisco 
A) a bond issued by a state with a very good credit rating 
B) a bond issued by the U.S.government 
C) a bond issued by a fairly new company doing genetic research 
D) a bond issued by Nabisco

Question 11

Managed funds

Accepted Answer

A) typically have a higher rate of return and higher costs than index funds. 
B) typically have a higher rate of return and lower costs than index funds. 
C) typically have a lower rate of return and higher costs than index funds. 
D) typically have a lower rate of return and lower costs than index funds. 
A) typically have a higher rate of return and higher costs than index funds. 
B) typically have a higher rate of return and lower costs than index funds. 
C) typically have a lower rate of return and higher costs than index funds. 
D) typically have a lower rate of return and lower costs than index funds.

Question 12

The identity that shows that GDP is both total income and total expenditure is represented by

Accepted Answer

A) GDP = Y. 
B) Y = DI + T + NX. 
C) GDP = GNP - NX. 
D) Y = C + I + G + NX. 
A) GDP = Y. 
B) Y = DI + T + NX. 
C) GDP = GNP - NX. 
D) Y = C + I + G + NX.

Question 13

If Proctor and Gamble sells a bond it is

Accepted Answer

A) borrowing directly from the public. 
B) borrowing indirectly from the public. 
C) lending directly to the public. 
D) lending indirectly to the public. 
A) borrowing directly from the public. 
B) borrowing indirectly from the public. 
C) lending directly to the public. 
D) lending indirectly to the public.

Question 14

Which of the following is not correct?

Accepted Answer

A) American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan. 
B) Saving is an important long-run determinant of a nation's standard of living. 
C) A change in tax laws that encouraged greater saving would lower interest rates. 
D) Taxes on interest income can substantially decrease the future value of current saving. 
A) American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan. 
B) Saving is an important long-run determinant of a nation's standard of living. 
C) A change in tax laws that encouraged greater saving would lower interest rates. 
D) Taxes on interest income can substantially decrease the future value of current saving.

Question 15

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A) undervalued or people are relatively optimistic about the corporation's prospects. 
B) overvalued or people are relatively optimistic about the corporation's prospects. 
C) overvalued or people are relatively pessimistic about the corporation's prospects. 
D) undervalued or people are relatively pessimistic about the corporation's prospects. 
A) undervalued or people are relatively optimistic about the corporation's prospects. 
B) overvalued or people are relatively optimistic about the corporation's prospects. 
C) overvalued or people are relatively pessimistic about the corporation's prospects. 
D) undervalued or people are relatively pessimistic about the corporation's prospects.

Question 16

Use the following table to answer the following questions.
Table 26-2
  
-Refer to Table 26-2.Which company had the PE ratio closest to what is historically typical?

Accepted Answer

A) Boeing Co. 
B) Eli Lilly and Co. 
C) H.J.Heinz and Co. 
D) Kellog Co. 
A) Boeing Co. 
B) Eli Lilly and Co. 
C) H.J.Heinz and Co. 
D) Kellog Co.

Question 17

Which of the following bond buyers did not buy the bond that best met their objective?

Accepted Answer

A) Mia wanted a bond with a high interest rate and was willing to take a lot of risk.She purchased a junk bond. 
B) Anna wanted a bond that would let her best avoid federal income taxes.She purchased a municipal bond. 
C) Bill wanted to purchase a bond that was unlikely to have default.He purchased a bond that Standards and Poor's rated a low credit risk. 
D) Toby held long-term bonds rather than short-term ones to avoid risk. 
A) Mia wanted a bond with a high interest rate and was willing to take a lot of risk.She purchased a junk bond. 
B) Anna wanted a bond that would let her best avoid federal income taxes.She purchased a municipal bond. 
C) Bill wanted to purchase a bond that was unlikely to have default.He purchased a bond that Standards and Poor's rated a low credit risk. 
D) Toby held long-term bonds rather than short-term ones to avoid risk.

Question 18

Suppose that government expenditures on goods and services and net taxes both decrease,but that expenditures fall by more than net taxes.The effects of these changes on the budget deficit make

Accepted Answer

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

Question 19

Which of the following could explain a decrease in the interest rate and the equilibrium quantity of loanable funds?

Accepted Answer

A) The demand for loanable funds shifted right. 
B) The demand for loanable funds shifted left. 
C) The supply of loanable funds shifted right. 
D) The supply of loanable funds shifted left. 
A) The demand for loanable funds shifted right. 
B) The demand for loanable funds shifted left. 
C) The supply of loanable funds shifted right. 
D) The supply of loanable funds shifted left.

Question 20

Suppose the economy is closed and consumption is 6,500 taxes are 1,500 and government purchases are 2,000.If national savings are 1,000 and the economy is closed then,what is GDP?

Accepted Answer

A) 9,500 
B) 10,000 
C) 10,500 
D) None of the above is correct. 
A) 9,500 
B) 10,000 
C) 10,500 
D) None of the above is correct.

Exam 26: Saving, investment, and the Financial System

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2.Which company had the highest earnings per share?

When the government runs a budget deficit,

Suppose that in a closed economy GDP is $11 trillion,consumption is $7 trillion,taxes are $3 trillion and the government runs a surplus of $1 trillion.What are private saving and national saving?

An increase in the budget deficit

A dividend yield is the

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we'd expect this reduction in the budget deficit to have

A checking deposit functions as

Suppose a country has a consumption tax that is similar to a state 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 happens?

If there is a shortage of loanable funds,then

Other things the same,which bond would you expect to pay the lowest interest rate?

Managed funds

The identity that shows that GDP is both total income and total expenditure is represented by

If Proctor and Gamble sells a bond it is

Which of the following is not correct?

A low price-earnings ratio indicates that either the stock is

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2.Which company had the PE ratio closest to what is historically typical?

Which of the following bond buyers did not buy the bond that best met their objective?

Suppose that government expenditures on goods and services and net taxes both decrease,but that expenditures fall by more than net taxes.The effects of these changes on the budget deficit make

Which of the following could explain a decrease in the interest rate and the equilibrium quantity of loanable funds?

Suppose the economy is closed and consumption is 6,500 taxes are 1,500 and government purchases are 2,000.If national savings are 1,000 and the economy is closed then,what is GDP?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

Supply, demand, and Government Policies

Consumers, producers, and the Efficiency of Markets

Application: 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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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