Question 1

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A) low, indicating that buyers may expect earnings to rise. 
B) low, indicating that buyers may expect earnings to fall. 
C) high, indicating that buyers may expect earnings to rise. 
D) high, indicating that buyers may expect earnings to fall. 
A) low, indicating that buyers may expect earnings to rise. 
B) low, indicating that buyers may expect earnings to fall. 
C) high, indicating that buyers may expect earnings to rise. 
D) high, indicating that buyers may expect earnings to fall.

Question 2

Figure 13-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves.  
-Refer to Figure 13-2. Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A) The government goes from running a budget deficit to running a budget surplus. 
B) Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 
C) A change in the tax laws encourages people to consume less and save more. 
D) A change in the tax laws encourages people to consume more and save less. 
A) The government goes from running a budget deficit to running a budget surplus. 
B) Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. 
C) A change in the tax laws encourages people to consume less and save more. 
D) A change in the tax laws encourages people to consume more and save less.

Question 3

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment. 
A) higher interest rates and greater investment. 
B) higher interest rates and less investment. 
C) lower interest rates and greater investment. 
D) lower interest rate and less investment.

Question 4

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is ($45 million -

Question 5

In a closed economy, public saving is the amount of

Accepted Answer

A) income that households have left after paying for taxes and consumption. 
B) income that businesses have left after paying for the factors of production. 
C) tax revenue that the government has left after paying for its spending. 
D) spending that the government undertakes in excess of the taxes it collects. 
A) income that households have left after paying for taxes and consumption. 
B) income that businesses have left after paying for the factors of production. 
C) tax revenue that the government has left after paying for its spending. 
D) spending that the government undertakes in excess of the taxes it collects.

Question 6

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

Accepted Answer

A) There would be an increase in the amount of loanable funds borrowed. 
B) There would be a reduction in the amount of loanable funds borrowed. 
C) There would be no change in the amount of loanable funds borrowed. 
D) The change in loanable funds is uncertain. 
A) There would be an increase in the amount of loanable funds borrowed. 
B) There would be a reduction in the amount of loanable funds borrowed. 
C) There would be no change in the amount of loanable funds borrowed. 
D) The change in loanable funds is uncertain.

Question 7

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 13-3. A shift of the supply curve from S1 to S2 is called

Accepted Answer

A) an increase in the supply of loanable funds. 
B) an increase in the quantity of loanable funds supplied. 
C) a decrease in the supply of loanable funds. 
D) a decrease in the quantity of loanable funds supplied. 
A) an increase in the supply of loanable funds. 
B) an increase in the quantity of loanable funds supplied. 
C) a decrease in the supply of loanable funds. 
D) a decrease in the quantity of loanable funds supplied.

Question 8

A high demand for a company's stock is an indication that

Accepted Answer

A) the company is in need of funds. 
B) the company has recently sold a large quantity of bonds. 
C) people are optimistic about the company's future. 
D) people are pessimistic about the company's future. 
A) the company is in need of funds. 
B) the company has recently sold a large quantity of bonds. 
C) people are optimistic about the company's future. 
D) people are pessimistic about the company's future.

Question 9

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 10

If an economy is closed and if it has no government, then

Accepted Answer

A) national saving = private saving. 
B) total income = consumption + investment. 
C) saving = total income - consumption. 
D) All of the above are correct. 
A) national saving = private saving. 
B) total income = consumption + investment. 
C) saving = total income - consumption. 
D) All of the above are correct.

Question 11

If there is shortage of loanable funds, then

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 12

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Accepted Answer

A) the decline in confidence in financial institutions 
B) the credit crunch 
C) the economic downturn 
D) the decline in asset prices 
A) the decline in confidence in financial institutions 
B) the credit crunch 
C) the economic downturn 
D) the decline in asset prices

Question 13

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

Accepted Answer

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

Question 14

A bond buyer is a

Accepted Answer

A) saver. Bond buyers must hold their bonds until maturity. 
B) saver. Bond buyers may sell their bonds prior to maturity. 
C) borrower. Bond buyers must hold their bonds until maturity. 
D) borrower. Bond buyers may sell their bonds prior to maturity. 
A) saver. Bond buyers must hold their bonds until maturity. 
B) saver. Bond buyers may sell their bonds prior to maturity. 
C) borrower. Bond buyers must hold their bonds until maturity. 
D) borrower. Bond buyers may sell their bonds prior to maturity.

Question 15

After a corporation issues stock, the stock

Accepted Answer

A) can not be resold. 
B) can be resold only if the corporation wants to buy it back. 
C) can be resold on exchanges; the resale will raise additional funds for the corporation. 
D) None of the above are correct. 
A) can not be resold. 
B) can be resold only if the corporation wants to buy it back. 
C) can be resold on exchanges; the resale will raise additional funds for the corporation. 
D) None of the above are correct.

Question 16

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Accepted Answer

A) the demand for loanable funds shifts rightward. 
B) the demand for loanable funds shifts leftward. 
C) the supply of loanable funds shifts rightward. 
D) the supply of loanable funds shifts leftward. 
A) the demand for loanable funds shifts rightward. 
B) the demand for loanable funds shifts leftward. 
C) the supply of loanable funds shifts rightward. 
D) the supply of loanable funds shifts leftward.

Question 17

In 2009 and 2010, the federal government's budget deficit was about

Accepted Answer

A) 5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B) 10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C) 5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D) 10 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
A) 5 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
B) 10 percent of GDP, and this was the highest debt-GDP ratio in U.S history. 
C) 5 percent of GDP, and this was the highest debt-GDP ratio since World War II. 
D) 10 percent of GDP, and this was the highest debt-GDP ratio since World War II.

Question 18

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Accepted Answer

A) the market for loanable funds is in equilibrium. 
B) the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C) the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D) the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise. 
A) the market for loanable funds is in equilibrium. 
B) the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise. 
C) the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall. 
D) the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.

Question 19

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $5 million, of which it retained $1 million for future investments. The dividend yield on the stock is

Accepted Answer

A) 1 percent. 
B) 2 percent. 
C) 4 percent. 
D) 5 percent. 
A) 1 percent. 
B) 2 percent. 
C) 4 percent. 
D) 5 percent.

Question 20

Short-term bonds are generally

Accepted Answer

A) less risky than long-term bonds and so they feature higher interest rates. 
B) less risky than long-term bonds and so they feature lower interest rates. 
C) more risky than long-term bonds and so they feature higher interest rates. 
D) more risky than long-term bonds and so they feature lower interest rates. 
A) less risky than long-term bonds and so they feature higher interest rates. 
B) less risky than long-term bonds and so they feature lower interest rates. 
C) more risky than long-term bonds and so they feature higher interest rates. 
D) more risky than long-term bonds and so they feature lower interest rates.

Exam 13: Saving, Investment, and the Financial System

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Figure 13-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 13-2. Which of the following events would shift the demand curve from D1 to D2?

If a reform of the tax laws encourages greater saving, the result would be

In a closed economy, public saving is the amount of

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

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. A shift of the supply curve from S1 to S2 is called

A high demand for a company's stock is an indication that

On a graph that depicts the market for loanable funds, the nominal interest rate is measured along the vertical axis.

If an economy is closed and if it has no government, then

If there is shortage of loanable funds, then

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

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

A bond buyer is a

After a corporation issues stock, the stock

If the government institutes policies that diminish incentives to save, then in the loanable funds market

In 2009 and 2010, the federal government's budget deficit was about

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $5 million, of which it retained $1 million for future investments. The dividend yield on the stock is

Short-term bonds are generally

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

Filters

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. A shift of the supply curve from S₁ to S₂ is called