Question 1

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A) credit risk. 
B) interest risk. 
C) term risk. 
D) private risk. 
A) credit risk. 
B) interest risk. 
C) term risk. 
D) private risk.

Question 2

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A) crowding out would not be a consequence of an increase in the budget deficit. 
B) higher interest rates would not be a consequence of an increase in the budget deficit. 
C) an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D) we would be making only a semantic change in how we analyze the effects of government budget deficits. 
A) crowding out would not be a consequence of an increase in the budget deficit. 
B) higher interest rates would not be a consequence of an increase in the budget deficit. 
C) an increase in the budget deficit would cause the demand for loanable funds to decrease. 
D) we would be making only a semantic change in how we analyze the effects of government budget deficits.

Question 3

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A) The interest rate and investment would fall. 
B) The interest rate and investment would rise. 
C) The interest rate would rise and investment would fall. 
D) None of the above is necessarily correct. 
A) The interest rate and investment would fall. 
B) The interest rate and investment would rise. 
C) The interest rate would rise and investment would fall. 
D) None of the above is necessarily correct.

Question 4

Which of the following statements is correct?

Accepted Answer

A) NASDAQ is an important stock exchange in the United States. 
B) The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. 
C) Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations. 
D) All of the above are correct. 
A) NASDAQ is an important stock exchange in the United States. 
B) The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. 
C) Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations. 
D) All of the above are correct.

Question 5

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere

Question 6

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A) S = I - G 
B) I = Y - C + G 
C) Y = C + I + G 
D) Y = C + I + G + NX 
A) S = I - G 
B) I = Y - C + G 
C) Y = C + I + G 
D) Y = C + I + G + NX

Question 7

If there is a surplus of loanable funds, then

Accepted Answer

A) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. 
A) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. 
B) the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. 
C) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. 
D) the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

Question 8

The ratio of debt to GDP in the United States

Accepted Answer

A) tends to fall during wars. 
B) fell during the decade that began in 2000. 
C) fell during the late 1990s. 
D) None of the above is correct. 
A) tends to fall during wars. 
B) fell during the decade that began in 2000. 
C) fell during the late 1990s. 
D) None of the above is correct.

Question 9

Digital Publishing has a share price of $28, retained earnings of $0.60 per share, and a dividend yield of 5 percent. What is Digital's price-earnings ratio?

Accepted Answer

A) 24 
B) 16 
C) 14 
D) 12 
A) 24 
B) 16 
C) 14 
D) 12

Question 10

Northwest Wholesale Foods sells common stock. The company is using

Accepted Answer

A) equity financing and the return shareholders earn is fixed. 
B) equity financing and the return shareholders earn depends on how profitable the company is. 
C) debt financing and the return shareholders earn is fixed. 
D) debt financing and the return shareholders earn depends on how profitable the company is. 
A) equity financing and the return shareholders earn is fixed. 
B) equity financing and the return shareholders earn depends on how profitable the company is. 
C) debt financing and the return shareholders earn is fixed. 
D) debt financing and the return shareholders earn depends on how profitable the company is.

Question 11

If Congress instituted an investment tax credit, the interest rate would

Accepted Answer

A) rise and saving would rise. 
B) fall and saving would fall. 
C) rise and saving would fall. 
D) fall and saving would rise. 
A) rise and saving would rise. 
B) fall and saving would fall. 
C) rise and saving would fall. 
D) fall and saving would rise.

Question 12

Table 13-1
 $$\begin{array} { | l | l | l | l | l | l | l | l | l } 
\hline \text { Stack } & \text { Sym } & \text { Yld } \% & \text { P/E } & \text { Val 100s } & \text { Hi } & \text { Lo } & \text { Clase } & \text { Net Che. } \
\hline \text { GenMills } & \text { GIS } & 2.5 & 35 & 13758 & 44.3 & 43.5 & 43.97 & - 0 .63 \
\hline \text { Gillette } & \text { G } & 2.2 & 31 & 30428 & 31.1 & 29.7 & 30 & 0 .17 \
\hline \text { Graca } & \text { GGG } & 1.2 & 16 & 705 & 24.2 & 23.1 & 23.95 & - 0 .53 \
\hline \text { Hershey } & \text { HSY } & 2.1 & 38 & 5418 & 63.4 & 61.7 & 62.45 & 0 .72 \
\hline
\end{array}$$
-Refer to Table 13-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Gillette stock traded that day?

Accepted Answer

A) $912,840,000 
B) $91,284,000 
C) $9,128,400 
D) $912,840 
A) $912,840,000 
B) $91,284,000 
C) $9,128,400 
D) $912,840

Question 13

If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is

Accepted Answer

A) 5 percent. 
B) 1 percent. 
C) 1.5 percent 
D) 0.67 percent. 
A) 5 percent. 
B) 1 percent. 
C) 1.5 percent 
D) 0.67 percent.

Question 14

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A) the credit risk associated with Bond A is lower than the credit risk associated with Bond B. 
B) Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation. 
C) Bond A has a term of 20 years and Bond B has a term of 2 years. 
D) All of the above are correct. 
A) the credit risk associated with Bond A is lower than the credit risk associated with Bond B. 
B) Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation. 
C) Bond A has a term of 20 years and Bond B has a term of 2 years. 
D) All of the above are correct.

Question 15

Other things the same, an increase in government expenditures with no change in taxes makes national saving

Accepted Answer

A) rise. The supply of loanable funds shifts right. 
B) rise. The demand for loanable funds shifts right. 
C) fall. The supply of loanable funds shifts left. 
D) fall. The demand for loanable funds shifts left. 
A) rise. The supply of loanable funds shifts right. 
B) rise. The demand for loanable funds shifts right. 
C) fall. The supply of loanable funds shifts left. 
D) fall. The demand for loanable funds shifts left.

Question 16

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

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 17

The number of shares of Biggie Corporation stock outstanding in 2007 was 100 million. In 2007, Biggie stock paid a dividend of $2.40 per share and its dividend yield was 4 percent. If the price-earnings ratio is 16, then Biggie's total earnings in 2007 amounted to

Accepted Answer

A) $1.92 million. 
B) $87.50 million. 
C) $375.00 million. 
D) $960.00 million. 
A) $1.92 million. 
B) $87.50 million. 
C) $375.00 million. 
D) $960.00 million.

Question 18

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 19

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

Accepted Answer

A) The economy has no government. 
B) The economy's government is running a budget deficit. 
C) The economy's government is running a budget surplus. 
D) No restriction is necessary; investment and private saving are equal for all closed economies. 
A) The economy has no government. 
B) The economy's government is running a budget deficit. 
C) The economy's government is running a budget surplus. 
D) No restriction is necessary; investment and private saving are equal for all closed economies.

Exam 13: Saving, Investment, and the Financial System

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

Which of the following statements is correct?

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Which of the following equations will always represent GDP in an open economy?

If there is a surplus of loanable funds, then

The ratio of debt to GDP in the United States

Digital Publishing has a share price of $28, retained earnings of $0.60 per share, and a dividend yield of 5 percent. What is Digital's price-earnings ratio?

Northwest Wholesale Foods sells common stock. The company is using

If Congress instituted an investment tax credit, the interest rate would

If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Other things the same, an increase in government expenditures with no change in taxes makes national saving

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

The number of shares of Biggie Corporation stock outstanding in 2007 was 100 million. In 2007, Biggie stock paid a dividend of $2.40 per share and its dividend yield was 4 percent. If the price-earnings ratio is 16, then Biggie's total earnings in 2007 amounted to

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

Which of the following restrictions implies that investment exceeds private saving 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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