Question 1

A larger budget surplus

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 2

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Accepted Answer

A) and investment both would increase. 
B) and investment both would decrease. 
C) would increase and investment would decrease. 
D) would decrease and investment would increase. 
A) and investment both would increase. 
B) and investment both would decrease. 
C) would increase and investment would decrease. 
D) would decrease and investment would increase.

Question 3

We associate the term debt finance with

Accepted Answer

A) the bond market, and we associate the term equity finance with the stock market. 
B) the stock market, and we associate the term equity finance with the bond market. 
C) financial intermediaries, and we associate the term equity finance with financial markets. 
D) financial markets, and we associate the term equity finance with financial intermediaries. 
A) the bond market, and we associate the term equity finance with the stock market. 
B) the stock market, and we associate the term equity finance with the bond market. 
C) financial intermediaries, and we associate the term equity finance with financial markets. 
D) financial markets, and we associate the term equity finance with financial intermediaries.

Question 4

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

Accepted Answer

A) high, perhaps indicating that people expect future earnings to rise. 
B) high, perhaps indicating that people expect future earnings to fall. 
C) low, perhaps indicating that people expect future earnings to rise. 
D) low, perhaps indicating that people expect future earnings to fall. 
A) high, perhaps indicating that people expect future earnings to rise. 
B) high, perhaps indicating that people expect future earnings to fall. 
C) low, perhaps indicating that people expect future earnings to rise. 
D) low, perhaps indicating that people expect future earnings to fall.

Question 5

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts?

Accepted Answer

A) the interest rate and quantity of loanable funds would increase 
B) the interest rate and quantity of loanable funds would decrease. 
C) the interest rate would increase and the quantity of loanable funds would decrease. 
D) the interest rate would decrease and the quantity of loanable funds would increase. 
A) the interest rate and quantity of loanable funds would increase 
B) the interest rate and quantity of loanable funds would decrease. 
C) the interest rate would increase and the quantity of loanable funds would decrease. 
D) the interest rate would decrease and the quantity of loanable funds would increase.

Question 6

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Accepted Answer

A) the demand for this company's stock to decrease, so the price would rise. 
B) the demand for this company's stock to decrease, so the price would fall. 
C) the supply of this company's stock to decrease, so the price would fall. 
D) the supply of this company's stock to decrease, so the price would rise. 
A) the demand for this company's stock to decrease, so the price would rise. 
B) the demand for this company's stock to decrease, so the price would fall. 
C) the supply of this company's stock to decrease, so the price would fall. 
D) the supply of this company's stock to decrease, so the price would rise.

Question 7

Which of the following statements is correct?

Accepted Answer

A) A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities. 
B) On average, managed funds outperform indexed funds. 
C) Unlike corporate bonds and stocks, checking accounts are a medium of exchange. 
D) A mutual fund is a financial market. 
A) A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities. 
B) On average, managed funds outperform indexed funds. 
C) Unlike corporate bonds and stocks, checking accounts are a medium of exchange. 
D) A mutual fund is a financial market.

Question 8

Which of the following people purchased the correct asset to meet his or her objective?

Accepted Answer

A) Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. 
B) Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C) Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. 
D) All of the above are correct. 
A) Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza. 
B) Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. 
C) Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda. 
D) All of the above are correct.

Question 9

Which of the following statements is correct?

Accepted Answer

A) The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B) The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate. 
C) If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. 
D) All of the above are correct. 
A) The interest rate that is usually reported is the interest rate that has been corrected for inflation. 
B) The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate. 
C) If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. 
D) All of the above are correct.

Question 10

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A) The government goes from a surplus to a deficit. 
B) The government repeals an investment tax credit. 
C) The government replaces a consumption tax with an income tax. 
D) None of the above is correct. 
A) The government goes from a surplus to a deficit. 
B) The government repeals an investment tax credit. 
C) The government replaces a consumption tax with an income tax. 
D) None of the above is correct.

Question 11

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

Accepted Answer

A) national saving would fall and private saving would rise 
B) national saving would rise and private saving would fall 
C) both national saving and private saving would fall 
D) None of the above is correct. 
A) national saving would fall and private saving would rise 
B) national saving would rise and private saving would fall 
C) both national saving and private saving would fall 
D) None of the above is correct.

Question 12

Which of the following could explain an increase in the interest rate and an increase in the equilibrium quantity of investment?

Accepted Answer

A) the supply of loanable funds shifted right. 
B) the supply of loanable funds shifted left. 
C) the demand for loanable funds shifted right. 
D) the demand for loanable funds shifted left. 
A) the supply of loanable funds shifted right. 
B) the supply of loanable funds shifted left. 
C) the demand for loanable funds shifted right. 
D) the demand for loanable funds shifted left.

Question 13

A bond that never matures is known as a

Accepted Answer

A) perpetuity. 
B) an intermediary bond. 
C) an indexed bond. 
D) a junk bond. 
A) perpetuity. 
B) an intermediary bond. 
C) an indexed bond. 
D) a junk bond.

Question 14

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 15

Other things the same, a government budget deficit

Accepted Answer

A) reduces public saving, but not national saving. 
B) reduces national saving, but not public saving. 
C) reduces both public and national saving. 
D) reduces neither public saving nor national saving. 
A) reduces public saving, but not national saving. 
B) reduces national saving, but not public saving. 
C) reduces both public and national saving. 
D) reduces neither public saving nor national saving.

Question 16

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $2.00 per share and dividends of $.50 per share. What is the price-earnings ratio and what is the dividend yield?

Accepted Answer

A) 20, 1.25 percent 
B) 20, 6.25 percent 
C) 16, 1.25 percent 
D) None of the above is correct. 
A) 20, 1.25 percent 
B) 20, 6.25 percent 
C) 16, 1.25 percent 
D) None of the above is correct.

Question 17

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Accepted Answer

A) their consumption expenditures are being financed by someone else's saving. 
B) their consumption expenditures are being financed by someone else's investment. 
C) their investments are being financed by someone else's saving. 
D) their saving is being financed by someone else's investment. 
A) their consumption expenditures are being financed by someone else's saving. 
B) their consumption expenditures are being financed by someone else's investment. 
C) their investments are being financed by someone else's saving. 
D) their saving is being financed by someone else's investment.

Question 18

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Accepted Answer

A) earnings. 
B) retained earnings. 
C) economic, or real, profit. 
D) dividend. 
A) earnings. 
B) retained earnings. 
C) economic, or real, profit. 
D) dividend.

Question 19

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A) C 
B) I 
C) G 
D) None of the above are correct. 
A) C 
B) I 
C) G 
D) None of the above are correct.

Question 20

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Exam 13: Saving, Investment, and the Financial System

A larger budget surplus

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

We associate the term debt finance with

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts?

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Which of the following statements is correct?

Which of the following people purchased the correct asset to meet his or her objective?

Which of the following statements is correct?

Interest rates fall and investment falls. Which of the following could explain these changes?

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

Which of the following could explain an increase in the interest rate and an increase in the equilibrium quantity of investment?

A bond that never matures is known as a

Most entrepreneurs finance their purchases of real capital using their past saving.

Other things the same, a government budget deficit

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $2.00 per share and dividends of $.50 per share. What is the price-earnings ratio and what is the dividend yield?

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

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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