Question 1

Which of the following statements about mutual funds is correct?

Accepted Answer

A) A mutual fund is not a financial intermediary. 
B) A disadvantage of buying mutual funds is a lack of diversification 
C) People who buy shares from a mutual fund are guaranteed a minimum return. 
D) On average index funds outperform managed funds. 
A) A mutual fund is not a financial intermediary. 
B) A disadvantage of buying mutual funds is a lack of diversification 
C) People who buy shares from a mutual fund are guaranteed a minimum return. 
D) On average index funds outperform managed funds. D

Question 2

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

Accepted Answer

A) 9,500 
B) 10,000 
C) 10,500 
D) 11,000 
A) 9,500 
B) 10,000 
C) 10,500 
D) 11,000 A

Question 3

Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded.
$\begin{array} { | l | c | } 
\hline \text { GDP } & \$ 200 \text { billion } \
\hline \text { Consumption } & \$ 130 \text { billion } \
\hline \text { Taxes Net of Transfers } & \$ 30 \text { billion } \
\hline \text { Government Spending } & \$ 40 \text { billion } \
\hline
\end{array}$

Accepted Answer

A) $30 billion 
B) $25 billion 
C) $20 billion 
D) $15 billion 
A) $30 billion 
B) $25 billion 
C) $20 billion 
D) $15 billion A

Question 4

Which of the following is both a financial institution and a financial intermediary?

Accepted Answer

A) banks 
B) stock exchanges 
C) the bond market 
D) All of the above are correct. 
A) banks 
B) stock exchanges 
C) the bond market 
D) All of the above are correct.

Question 5

When a country saves a larger portion of its GDP than it did before, it will have

Accepted Answer

A) more capital and higher productivity. 
B) more capital and lower productivity. 
C) less capital and higher productivity. 
D) less capital and lower productivity. 
A) more capital and higher productivity. 
B) more capital and lower productivity. 
C) less capital and higher productivity. 
D) less capital and lower productivity.

Question 6

Which of the following is an example of financial intermediation?

Accepted Answer

A) John buys shares of stock issued by a fast food company. 
B) A foreign government buys bonds issued by the U.S. Treasury. 
C) Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson. 
D) None of the above is correct. 
A) John buys shares of stock issued by a fast food company. 
B) A foreign government buys bonds issued by the U.S. Treasury. 
C) Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson. 
D) None of the above is correct.

Question 7

In which case would people desire to borrow the most?

Accepted Answer

A) the nominal interest rate is 8% and the inflation rate is 7% 
B) the nominal interest rate is 7% and the inflation rate is 5% 
C) the nominal interest rate is 6% and the inflation rate is 3% 
D) the nominal interest rate is 5% and the inflation rate is 1% 
A) the nominal interest rate is 8% and the inflation rate is 7% 
B) the nominal interest rate is 7% and the inflation rate is 5% 
C) the nominal interest rate is 6% and the inflation rate is 3% 
D) the nominal interest rate is 5% and the inflation rate is 1%

Question 8

Figure 13-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.  
-Refer to Figure 13-2. What is measured along the horizontal axis of the graph?

Accepted Answer

A) the quantity of loanable funds 
B) the size of the government budget deficit or surplus 
C) the real interest rate 
D) the nominal interest rate 
A) the quantity of loanable funds 
B) the size of the government budget deficit or surplus 
C) the real interest rate 
D) the nominal interest rate

Question 9

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 13-3. Which of the following movements shows the effects of a new law that makes more people than before eligible for Individual Retirement Accounts?

Accepted Answer

A) a movement from Point A to Point B 
B) a movement from Point B to Point F 
C) a movement from Point C to Point F 
D) a movement from Point C to Point B 
A) a movement from Point A to Point B 
B) a movement from Point B to Point F 
C) a movement from Point C to Point F 
D) a movement from Point C to Point B

Question 10

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Accepted Answer

A) the fund's managers 
B) the fund's shareholders 
C) the federal government 
D) the corporations that originally issued the stocks and/or bonds held by the fund 
A) the fund's managers 
B) the fund's shareholders 
C) the federal government 
D) the corporations that originally issued the stocks and/or bonds held by the fund

Question 11

In national income accounting, we use which of the following pairs of terms interchangeably?

Accepted Answer

A) "investment" and "private saving" 
B) "investment" and "purchases of stocks and bonds" 
C) "saving" and "national saving" 
D) "public saving" and "government tax revenue minus government spending" 
A) "investment" and "private saving" 
B) "investment" and "purchases of stocks and bonds" 
C) "saving" and "national saving" 
D) "public saving" and "government tax revenue minus government spending"

Question 12

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 13

In 2008, CDZ Corporation had total earnings of $500 million and CDZ retained 30 percent of its earnings for future investments. If the price of a share of CDZ stock is $70 and if 80 million shares of its stock were outstanding, then what is the price-earnings ratio?

Accepted Answer

A) 0.14 
B) 11.2 
C) 16.0 
D) 37.3 
A) 0.14 
B) 11.2 
C) 16.0 
D) 37.3

Question 14

Last quarter in a closed economy GDP was 100,000. Expenditures on capital goods such as business equipment and structures was 10,000, inventory rose 1,000, and new construction of homes was 5,000. Consumption was 65,000, taxes were 15,000. What was public saving?

Accepted Answer

A) -4,000 
B) -5,000 
C) -14,000 
D) -15,000 
A) -4,000 
B) -5,000 
C) -14,000 
D) -15,000

Question 15

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A) 3 
B) 8 
C) 15 
D) 26 
A) 3 
B) 8 
C) 15 
D) 26

Question 16

The first element of a financial crisis is

Accepted Answer

A) inflation. 
B) a decline in confidence in financial institutions. 
C) a relaxation of rules and regulations that pertain to the financial system. 
D) a large decline in some asset prices. 
A) inflation. 
B) a decline in confidence in financial institutions. 
C) a relaxation of rules and regulations that pertain to the financial system. 
D) a large decline in some asset prices.

Question 17

A creditor of a corporation holds

Accepted Answer

A) bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
B) bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
C) stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
D) stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
A) bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
B) bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders. 
C) stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders. 
D) stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.

Question 18

Scenario 13-2. Assume the following information for an imaginary, closed economy.
GDP = $200,000; consumption = $120,000;
government purchases = $35,000; and taxes = $25,000.
-Refer to Scenario 13-2. For this economy, private saving is equal to

Accepted Answer

A) $40,000. 
B) $50,000. 
C) $55,000. 
D) $60,000. 
A) $40,000. 
B) $50,000. 
C) $55,000. 
D) $60,000.

Question 19

Scenario 13-2. Assume the following information for an imaginary, closed economy.
GDP = $200,000; consumption = $120,000;
government purchases = $35,000; and taxes = $25,000.
-Refer to Scenario 13-2. For this economy, investment amounts to

Accepted Answer

A) $25,000. 
B) $30,000. 
C) $35,000. 
D) $45,000. 
A) $25,000. 
B) $30,000. 
C) $35,000. 
D) $45,000.

Question 20

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A) Private saving is equal to zero. 
B) Public saving is equal to zero. 
C) The economy's government is running neither a surplus nor a deficit. 
D) No restriction is necessary; saving and investment are equal for all closed economies. 
A) Private saving is equal to zero. 
B) Public saving is equal to zero. 
C) The economy's government is running neither a surplus nor a deficit. 
D) No restriction is necessary; saving and investment are equal for all closed economies.

Exam 13: Saving, Investment, and the Financial System

Which of the following statements about mutual funds is correct?

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

Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded. GDP \ 200 billion Consumption \ 130 billion Taxes Net of Transfers \ 30 billion Government Spending \ 40 billion

Which of the following is both a financial institution and a financial intermediary?

When a country saves a larger portion of its GDP than it did before, it will have

Which of the following is an example of financial intermediation?

In which case would people desire to borrow the most?

Figure 13-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 13-2. What is measured along the horizontal axis of the graph?

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. Which of the following movements shows the effects of a new law that makes more people than before eligible for Individual Retirement Accounts?

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

In national income accounting, we use which of the following pairs of terms interchangeably?

Managed funds

In 2008, CDZ Corporation had total earnings of $500 million and CDZ retained 30 percent of its earnings for future investments. If the price of a share of CDZ stock is $70 and if 80 million shares of its stock were outstanding, then what is the price-earnings ratio?

Last quarter in a closed economy GDP was 100,000. Expenditures on capital goods such as business equipment and structures was 10,000, inventory rose 1,000, and new construction of homes was 5,000. Consumption was 65,000, taxes were 15,000. What was public saving?

Historically, the typical price-earnings ratio for stocks is about

The first element of a financial crisis is

A creditor of a corporation holds

Scenario 13-2. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. -Refer to Scenario 13-2. For this economy, private saving is equal to

Scenario 13-2. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. -Refer to Scenario 13-2. For this economy, investment amounts to

Which of the following restrictions implies that saving and investment are equal for a closed economy?

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

Application: The Costs of Taxation

Application: International Trade

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 Macroeconomic Models

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

Six Debates Over Macroeconomic Policy

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