Question 1

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 2

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Accepted Answer

A) The demand for loanable funds shifted rightward. 
B) The demand for loanable funds shifted leftward. 
C) The supply of loanable funds shifted rightward. 
D) The supply of loanable funds shifted leftward. 
A) The demand for loanable funds shifted rightward. 
B) The demand for loanable funds shifted leftward. 
C) The supply of loanable funds shifted rightward. 
D) The supply of loanable funds shifted leftward.

Question 3

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A) there is a surplus so interest rates will rise. 
B) there is a surplus so interest rates will fall. 
C) there is a shortage so interest rates will rise. 
D) there is a shortage so interest rates will fall. 
A) there is a surplus so interest rates will rise. 
B) there is a surplus so interest rates will fall. 
C) there is a shortage so interest rates will rise. 
D) there is a shortage so interest rates will fall.

Question 4

When a large, well-known corporation wishes to borrow directly from the public, it can

Accepted Answer

A) sell bonds. 
B) sell shares of stock. 
C) go to a bank for a loan. 
D) All of the above are correct. 
A) sell bonds. 
B) sell shares of stock. 
C) go to a bank for a loan. 
D) All of the above are correct.

Question 5

The source of the supply of loanable funds

Accepted Answer

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

Question 6

To state that public saving is equal to investment, for a closed economy, is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Question 7

If the budget deficit increases then

Accepted Answer

A) saving and the interest rate rise 
B) saving rises and the interest rate falls 
C) saving falls and the interest rate rises 
D) saving and the interest rate falls 
A) saving and the interest rate rise 
B) saving rises and the interest rate falls 
C) saving falls and the interest rate rises 
D) saving and the interest rate falls

Question 8

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Accepted Answer

A) True 
 B)False

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 the government going from a budget deficit to a budget surplus?

Accepted Answer

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

Question 10

The country of Meditor uses the merit as its currency. Recent national income statistics showed that it had GDP of $700 million merits, no government transfer payments, taxes of $210 million merits, a budget surplus of $60 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A) 450 million merits and $150 million merits 
B) 410 million merits and $150 million merits 
C) 330 million merits and $270 million merits 
D) 290 million merits and $270 million merits 
A) 450 million merits and $150 million merits 
B) 410 million merits and $150 million merits 
C) 330 million merits and $270 million merits 
D) 290 million merits and $270 million merits

Question 11

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers. 
A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers.

Question 12

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 13

Scenario 13-1. Assume the following information for an imaginary, closed economy. $$\begin{array} { l } 
\text { GDP } = \$ 120,000 ; \text { consumption } = \$ 70,000 ; \text { private savng } = \$ 9,000 \text {; } \
\text { national saving } = \$ 12,000
\end{array}$$
-Refer to Scenario 13-1. For this economy, investment amounts to

Accepted Answer

A) $4,000. 
B) $9,000. 
C) $12,000. 
D) $16,000. 
A) $4,000. 
B) $9,000. 
C) $12,000. 
D) $16,000.

Question 14

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

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

Question 15

A larger budget deficit

Accepted Answer

A) raises the interest rate and investment. 
B) reduces the interest rate and investment. 
C) raises the interest rate and reduces investment. 
D) reduces the interest rate and raises investment. 
A) raises the interest rate and investment. 
B) reduces the interest rate and investment. 
C) raises the interest rate and reduces investment. 
D) reduces the interest rate and raises investment.

Question 16

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

Accepted Answer

A) 2.8 percent. 
B) 2.0 percent. 
C) 1.6 percent. 
D) 0.4 percent. 
A) 2.8 percent. 
B) 2.0 percent. 
C) 1.6 percent. 
D) 0.4 percent.

Question 17

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Accepted Answer

A) True 
 B)False

Question 18

The real interest rate is the

Accepted Answer

A) interest rate corrected for inflation. 
B) interest rate as usually reported by banks. 
C) difference between the interest rate charged by banks on the loans they make and the interest rate paid by banks to their depositors. 
D) difference between the average dividend yield on stocks and the average interest rate on bonds. 
A) interest rate corrected for inflation. 
B) interest rate as usually reported by banks. 
C) difference between the interest rate charged by banks on the loans they make and the interest rate paid by banks to their depositors. 
D) difference between the average dividend yield on stocks and the average interest rate on bonds.

Question 19

In a closed economy, private saving is

Accepted Answer

A) the amount of income that households have left after paying for their taxes and consumption. 
B) the amount of income that businesses have left after paying for the factors of production. 
C) the amount of tax revenue that the government has left after paying for its spending. 
D) always equal to investment. 
A) the amount of income that households have left after paying for their taxes and consumption. 
B) the amount of income that businesses have left after paying for the factors of production. 
C) the amount of tax revenue that the government has left after paying for its spending. 
D) always equal to investment.

Question 20

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

Accepted Answer

A) True 
 B)False

Exam 13: Saving, Investment, and the Financial System

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

When a large, well-known corporation wishes to borrow directly from the public, it can

The source of the supply of loanable funds

To state that public saving is equal to investment, for a closed economy, is to state an accounting identity.

If the budget deficit increases then

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

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 the government going from a budget deficit to a budget surplus?

It is claimed that a secondary advantage of mutual funds is that

By definition, government purchases and taxes are zero for a closed economy.

Scenario 13-1. Assume the following information for an imaginary, closed economy. GDP =\ 120,000; consumption =\ 70,000; private savng =\ 9,000 ; national saving =\ 12,000 -Refer to Scenario 13-1. For this economy, investment amounts to

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

A larger budget deficit

Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is

The term loanable funds refers to all income that is not used for consumption or government expenditures.

The real interest rate is the

In a closed economy, private saving is

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

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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