Question 1

In the loanable funds model, an increase in an investment tax credit would create a

Accepted Answer

A) shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate. 
B) shortage at the former equilibrium interest rate. This shortage would lead to a fall in the interest rate. 
C) surplus at the former equilibrium interest rate. This surplus would lead to a rise in the interest rate. 
D) surplus at the former equilibrium interest rate. This surplus would lead to a fall in the interest rate. 
A) shortage at the former equilibrium interest rate. This shortage would lead to a rise in the interest rate. 
B) shortage at the former equilibrium interest rate. This shortage would lead to a fall in the interest rate. 
C) surplus at the former equilibrium interest rate. This surplus would lead to a rise in the interest rate. 
D) surplus at the former equilibrium interest rate. This surplus would lead to a fall in the interest rate.

Question 2

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving?

Accepted Answer

A) 1,500 and -500, respectively 
B) 1,500 and 500, respectively 
C) 1,000 and -500, respectively 
D) 1,000 and 500, respectively 
A) 1,500 and -500, respectively 
B) 1,500 and 500, respectively 
C) 1,000 and -500, respectively 
D) 1,000 and 500, respectively

Question 3

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Accepted Answer

A) not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money. 
B) not influence the decision to build the factory because its stockholders are expecting a new factory. 
C) make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable. 
D) make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher. 
A) not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money. 
B) not influence the decision to build the factory because its stockholders are expecting a new factory. 
C) make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable. 
D) make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.

Question 4

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. What was Hershey's earnings per share?

Accepted Answer

A) $38 
B) $1.64 
C) $1.31 
D) $0.61 
A) $38 
B) $1.64 
C) $1.31 
D) $0.61

Question 5

Which of the following is correct?

Accepted Answer

A) The maturity of a bond refers to the amount to be paid back. 
B) The principal of the bond refers to the person selling the bond. 
C) A bond buyer cannot sell a bond before it matures. 
D) None of the above is correct. 
A) The maturity of a bond refers to the amount to be paid back. 
B) The principal of the bond refers to the person selling the bond. 
C) A bond buyer cannot sell a bond before it matures. 
D) None of the above is correct.

Question 6

Scenario 13-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
-Refer to Scenario 13-3. For this economy, government purchases amount to

Accepted Answer

A) $130. 
B) $180. 
C) $280. 
D) $330. 
A) $130. 
B) $180. 
C) $280. 
D) $330.

Question 7

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?

Accepted Answer

A) 1,500, 1,000, and 500, respectively 
B) 1,000, 500, and 1,500, respectively 
C) 500, 1,500, and 1,000, respectively 
D) None of the above is correct. 
A) 1,500, 1,000, and 500, respectively 
B) 1,000, 500, and 1,500, respectively 
C) 500, 1,500, and 1,000, respectively 
D) None of the above is correct.

Question 8

The bond market

Accepted Answer

A) is a financial market, whereas the stock market is a financial intermediary. 
B) is a financial intermediary, whereas the stock market is a financial market. 
C) is a financial market, as is the stock market. 
D) is a financial intermediary, as is the stock market. 
A) is a financial market, whereas the stock market is a financial intermediary. 
B) is a financial intermediary, whereas the stock market is a financial market. 
C) is a financial market, as is the stock market. 
D) is a financial intermediary, as is the stock market.

Question 9

A budget deficit

Accepted Answer

A) changes the supply of loanable funds. 
B) changes the demand for loanable funds. 
C) changes both the supply of and demand for loanable funds. 
D) does not influence the supply of or the demand for loanable funds. 
A) changes the supply of loanable funds. 
B) changes the demand for loanable funds. 
C) changes both the supply of and demand for loanable funds. 
D) does not influence the supply of or the demand for loanable funds.

Question 10

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Accepted Answer

A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction. 
A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction.

Question 11

The assumption of a closed economy

Accepted Answer

A) applies to the world economy. 
B) applies to most national economies. 
C) requires us to assume that the government's budget is always balanced. 
D) All of the above are correct. 
A) applies to the world economy. 
B) applies to most national economies. 
C) requires us to assume that the government's budget is always balanced. 
D) All of the above are correct.

Question 12

A low P/E for a stock indicates that

Accepted Answer

A) people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B) its dividends have been low so that no one is willing to pay very much for it. 
C) the corporation is possibly overvalued. 
D) All of the above are correct. 
A) people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition. 
B) its dividends have been low so that no one is willing to pay very much for it. 
C) the corporation is possibly overvalued. 
D) All of the above are correct.

Question 13

If Research in Motion, Inc. sells a bond it is

Accepted Answer

A) borrowing directly from the public. 
B) borrowing indirectly from the public. 
C) lending directly to the public. 
D) lending indirectly to the public. 
A) borrowing directly from the public. 
B) borrowing indirectly from the public. 
C) lending directly to the public. 
D) lending indirectly to the public.

Question 14

You have some estimates of national accounts numbers for a closed economy for the coming year. Under one set of expectations, government purchases will be $30 billion, transfer payments will be $10 billion, and taxes will be $45 billion. Under another set of expectations, GDP will be $200 billion, taxes will be $50 billion, transfer payments will be $20 billion, consumption will be $120 million, and investment will be $40 billion. Based on these numbers in the first case there should be a

Accepted Answer

A) $15 billion surplus, and in the second case a $10 billion surplus. 
B) $15 billion surplus, and in the second case a $10 billion deficit. 
C) $5 billion surplus, and in the second case a $10 billion surplus. 
D) $5 billion surplus, and in the second case a $10 billion deficit. 
A) $15 billion surplus, and in the second case a $10 billion surplus. 
B) $15 billion surplus, and in the second case a $10 billion deficit. 
C) $5 billion surplus, and in the second case a $10 billion surplus. 
D) $5 billion surplus, and in the second case a $10 billion deficit.

Question 15

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S.. Then

Accepted Answer

A) the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B) the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C) the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D) the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
A) the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
B) the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. 
C) the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. 
D) the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

Question 16

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Accepted Answer

A) breach. 
B) default. 
C) risk. 
D) term failure. 
A) breach. 
B) default. 
C) risk. 
D) term failure.

Question 17

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 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 18

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Accepted Answer

A) large decline in some asset prices $\rarr$ insolvencies at financial institutions $\rarr$decline in confidence in financial institutions 
B) insolvencies at financial institutions $\rarr$decline in confidence in financial institutions $\rarr$large decline in some asset prices 
C) insolvencies at financial institutions $\rarr$economic downturn $\rarr$credit crunch 
D) insolvencies at financial institutions $\rarr$credit crunch $\rarr$economic downturn 
A) large decline in some asset prices $\rarr$ insolvencies at financial institutions $\rarr$decline in confidence in financial institutions 
B) insolvencies at financial institutions $\rarr$decline in confidence in financial institutions $\rarr$large decline in some asset prices 
C) insolvencies at financial institutions $\rarr$economic downturn $\rarr$credit crunch 
D) insolvencies at financial institutions $\rarr$credit crunch $\rarr$economic downturn

Question 19

In the first part of the decade that began in 2000, the U.S. government went from a surplus to a deficit. Other things the same, this means the

Accepted Answer

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

Question 20

Which of the following are financial intermediaries?

Accepted Answer

A) both banks and mutual funds 
B) banks but not mutual funds 
C) mutual funds but not banks 
D) neither banks or mutual funds 
A) both banks and mutual funds 
B) banks but not mutual funds 
C) mutual funds but not banks 
D) neither banks or mutual funds

Exam 13: Saving, Investment, and the Financial System

In the loanable funds model, an increase in an investment tax credit would create a

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving?

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Which of the following is correct?

Scenario 13-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 13-3. For this economy, government purchases amount to

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 consumption equals 7,500 and government purchases equal 2,000. What are private saving, public saving, and national saving?

The bond market

A budget deficit

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

The assumption of a closed economy

A low P/E for a stock indicates that

If Research in Motion, Inc. sells a bond it is

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S.. Then

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

The first three elements of a financial crisis are correctly represented as taking place in the following order:

In the first part of the decade that began in 2000, the U.S. government went from a surplus to a deficit. Other things the same, this means the

Which of the following are financial intermediaries?

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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