Question 1

Which of the following could explain an increase in the equilibrium interest rate and a decrease in 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 2

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 3

Table 13-2
 $$\begin{array} { | l | l | l | l | l | l | l | l | l | } 
\hline \text { Stack } & \text { Sym } & \text { Yld \% } & \text { P/E } & \text { Val 100s } & \text { Hi } & \text { Lo } & \text { Clase } & \begin{array} { l } 
\text { Nat } \
\text { Che. }
\end{array} \
\hline \text { Baeing Ca. } & \text { BA } & 1.55 & 30.48 & 4,531,600 & 64.78 & 63.70 & 64.62 & + .93 \
\hline \text { Eli Lily and Cu. } & \text { LLY } & 2.60 & 29.71 & 3,765,700 & 58.98 & 58.21 & 58.52 & + .16 \
\hline \text { H. J. Heinz and Ca. } & \text { HNZ } & 3.30 & 15.33 & 1,350,200 & 36.55 & 36.26 & 36.33 & + .21 \
\hline \text { Kellog Cu. } & \text { K } & 2.22 & 20.50 & 1,990,600 & 45.72 & 45.20 & 45.50 & + .24 \
\hline
\end{array}$$
-Refer to Table 13-2. Which company had the lowest 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.

Question 4

Stocks and bonds

Accepted Answer

A) and checking accounts are all stores of value and commonly function as mediums of exchange. 
B) and checking accounts are all stores of value, but only stocks and bonds commonly function as mediums of exchange. 
C) and checking accounts are all stores of value, but only checking accounts commonly function as mediums of exchange. 
D) and checking accounts all commonly function as mediums of exchange, but only stocks and bonds are a store of value. 
A) and checking accounts are all stores of value and commonly function as mediums of exchange. 
B) and checking accounts are all stores of value, but only stocks and bonds commonly function as mediums of exchange. 
C) and checking accounts are all stores of value, but only checking accounts commonly function as mediums of exchange. 
D) and checking accounts all commonly function as mediums of exchange, but only stocks and bonds are a store of value.

Question 5

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment

Question 6

The source of the supply of loanable funds is

Accepted Answer

A) saving, and the source of the demand for loanable funds is investment. 
B) consumption, and the source of the demand for loanable funds is investment. 
C) investment, and the source of the demand for loanable funds is saving. 
D) the interest rate, and the source of the demand for loanable funds is saving. 
A) saving, and the source of the demand for loanable funds is investment. 
B) consumption, and the source of the demand for loanable funds is investment. 
C) investment, and the source of the demand for loanable funds is saving. 
D) the interest rate, and the source of the demand for loanable funds is saving.

Question 7

An increase in the budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 8

Which advantage(s) do mutual funds claim to provide?

Accepted Answer

A) diversification and access to the skills of professional money managers 
B) diversification but not access to the skills of professional money managers 
C) access to the skills of professional money managers but not diversification 
D) neither diversification nor access to the skills of professional money managers. 
A) diversification and access to the skills of professional money managers 
B) diversification but not access to the skills of professional money managers 
C) access to the skills of professional money managers but not diversification 
D) neither diversification nor access to the skills of professional money managers.

Question 9

Y = C + I + G + NX is an identity because

Accepted Answer

A) each symbol identifies a macroeconomic variable. 
B) the right-hand and left-hand sides are equal when an equilibrium is reached. 
C) the equality holds due to the way the variables are defined. 
D) None of the above is correct. 
A) each symbol identifies a macroeconomic variable. 
B) the right-hand and left-hand sides are equal when an equilibrium is reached. 
C) the equality holds due to the way the variables are defined. 
D) None of the above is correct.

Question 10

If Congress increased the tax rate on interest income, investment

Accepted Answer

A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease. 
A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease.

Question 11

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct.

Accepted Answer

A) The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds. 
B) The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
C) The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds. 
D) The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
A) The reduced budget deficit will raise interest rates in general. The increased risk of default will raise interest rates on government bonds. 
B) The reduced budget deficit will raise interest rates in general. The increased risk of default will reduce interest rates on government bonds. 
C) The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds. 
D) The reduced budget deficit will reduce interest rates in general. The increased risk of default will reduce interest rates on government bonds.

Question 12

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Accepted Answer

A) the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls. 
B) the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises. 
C) the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls. 
D) the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises. 
A) the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls. 
B) the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises. 
C) the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls. 
D) the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises.

Question 13

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Accepted Answer

A) is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
B) is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
C) is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
D) is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
A) is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
B) is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government. 
C) is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government. 
D) is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

Question 14

Stock represents

Accepted Answer

A) a claim to a share of the profits of a firm. 
B) ownership in a firm. 
C) equity finance. 
D) All of the above are correct 
A) a claim to a share of the profits of a firm. 
B) ownership in a firm. 
C) equity finance. 
D) All of the above are correct

Question 15

If the demand for loanable funds shifts to the left, then the equilibrium interest rate

Accepted Answer

A) and quantity of loanable funds rise. 
B) and quantity of loanable funds fall. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises. 
A) and quantity of loanable funds rise. 
B) and quantity of loanable funds fall. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises.

Question 16

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A) raise the demand for existing shares of the stock, causing the price to rise 
B) decrease the demand for existing shares of the stock, causing the price to fall 
C) raise the supply of the existing shares of stock, causing the price to rise 
D) raise the supply of the existing shares of stock, causing the price to fall 
A) raise the demand for existing shares of the stock, causing the price to rise 
B) decrease the demand for existing shares of the stock, causing the price to fall 
C) raise the supply of the existing shares of stock, causing the price to rise 
D) raise the supply of the existing shares of stock, causing the price to fall

Question 17

If the government currently has a budget deficit, then

Accepted Answer

A) it does not necessarily have a debt. 
B) its debt is increasing. 
C) government expenditures are greater than taxes. 
D) All of the above are correct. 
A) it does not necessarily have a debt. 
B) its debt is increasing. 
C) government expenditures are greater than taxes. 
D) All of the above are correct.

Question 18

Camp Company had total earnings of $600 million in 2008, out of which it retained $150 million for future investments. In 2008, its stock featured a dividend yield of 3 percent and 200 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Accepted Answer

A) 8.33. 
B) 12.00. 
C) 16.67. 
D) 25.00. 
A) 8.33. 
B) 12.00. 
C) 16.67. 
D) 25.00.

Question 19

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 13-3. What, specifically, does the label on the vertical axis, i, represent?

Accepted Answer

A) the nominal interest rate 
B) the real interest rate 
C) the inflation rate 
D) the dividend yield 
A) the nominal interest rate 
B) the real interest rate 
C) the inflation rate 
D) the dividend yield

Question 20

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Accepted Answer

A) True 
 B)False

Exam 13: Saving, Investment, and the Financial System

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

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Stocks and bonds

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

The source of the supply of loanable funds is

An increase in the budget deficit shifts the demand for loanable funds to the right.

Which advantage(s) do mutual funds claim to provide?

Y = C + I + G + NX is an identity because

If Congress increased the tax rate on interest income, investment

A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct.

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Stock represents

If the demand for loanable funds shifts to the left, then the equilibrium interest rate

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

If the government currently has a budget deficit, then

Camp Company had total earnings of $600 million in 2008, out of which it retained $150 million for future investments. In 2008, its stock featured a dividend yield of 3 percent and 200 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Figure 13-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 13-3. What, specifically, does the label on the vertical axis, i, represent?

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

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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