Question 1

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A) the interest it pays is taxed and it is long term 
B) the interest it pays is taxed and it is short term 
C) the interest it pays is tax exempt and it is long term 
D) the interest it pays is tax exempt and it is short term 
A) the interest it pays is taxed and it is long term 
B) the interest it pays is taxed and it is short term 
C) the interest it pays is tax exempt and it is long term 
D) the interest it pays is tax exempt and it is short term

Question 2

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

Accepted Answer

A) capital investment. 
B) investment in human capital. 
C) business consumption expenditures. 
D) personal saving. 
A) capital investment. 
B) investment in human capital. 
C) business consumption expenditures. 
D) personal saving.

Question 3

Scenario 13-2. Assume the following information for an imaginary, closed economy.
GDP = $200,000; consumption = $120,000;
government purchases = $35,000; and taxes = $25,000.
-Refer to Scenario 13-2. For this economy, national saving is equal to

Accepted Answer

A) $30,000. 
B) $35,000. 
C) $45,000. 
D) $60,000. 
A) $30,000. 
B) $35,000. 
C) $45,000. 
D) $60,000.

Question 4

Which of the following are effects of an increased budget deficit?

Accepted Answer

A) the supply of loanable funds does not change; a higher interest rate reduces private saving 
B) the supply of loanable funds does not change; a higher interest rate raises private saving 
C) at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving 
D) at any interest rate the supply of loanable funds is less; a higher interest rate raises private saving 
A) the supply of loanable funds does not change; a higher interest rate reduces private saving 
B) the supply of loanable funds does not change; a higher interest rate raises private saving 
C) at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving 
D) at any interest rate the supply of loanable funds is less; a higher interest rate raises private saving

Question 5

Which of the following is a certificate of indebtedness?

Accepted Answer

A) stocks and bonds 
B) stocks but not bonds 
C) bonds but not stocks 
D) neither stocks nor bonds 
A) stocks and bonds 
B) stocks but not bonds 
C) bonds but not stocks 
D) neither stocks nor bonds

Question 6

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A) the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B) the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C) the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D) the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A) the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B) the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C) the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D) the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 7

If the demand for loanable funds shifts to the right, 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 8

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 9

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

Accepted Answer

A) consumption 
B) taxes 
C) government purchases 
D) net exports 
A) consumption 
B) taxes 
C) government purchases 
D) net exports

Question 10

Borrowers can (and sometimes do) default on their loans when

Accepted Answer

A) the dividend yield on their shares of stock reaches zero. 
B) they convert their bonds into perpetuities. 
C) they declare bankruptcy. 
D) they cannot find enough buyers of their bonds to sell all the bonds they wish to sell. 
A) the dividend yield on their shares of stock reaches zero. 
B) they convert their bonds into perpetuities. 
C) they declare bankruptcy. 
D) they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.

Question 11

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

Accepted Answer

A) will make investment rise. 
B) will make the rate of interest rise. 
C) will make public saving rise. 
D) All of the above are correct. 
A) will make investment rise. 
B) will make the rate of interest rise. 
C) will make public saving rise. 
D) All of the above are correct.

Question 12

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A) each share represents 1 percent of the firm's indebtedness. 
B) each share represents ownership of 1 percent of the firm. 
C) the firm is engaging in term finance. 
D) All of the above are correct. 
A) each share represents 1 percent of the firm's indebtedness. 
B) each share represents ownership of 1 percent of the firm. 
C) the firm is engaging in term finance. 
D) All of the above are correct.

Question 13

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 14

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

Accepted Answer

A) and the equilibrium quantity of loanable funds both would be lower. 
B) and the equilibrium quantity of loanable funds both would be higher. 
C) would be higher and the equilibrium quantity of loanable funds would be lower. 
D) would be lower and the equilibrium quantity of loanable funds would be higher. 
A) and the equilibrium quantity of loanable funds both would be lower. 
B) and the equilibrium quantity of loanable funds both would be higher. 
C) would be higher and the equilibrium quantity of loanable funds would be lower. 
D) would be lower and the equilibrium quantity of loanable funds would be higher.

Question 15

If Japan goes from a small budget deficit to a large budget deficit, it will reduce

Accepted Answer

A) private saving and so shift the supply of loanable funds left. 
B) investment and so shift the demand for loanable funds left. 
C) public saving and so shift the supply of loanable funds left. 
D) None of the above is correct. 
A) private saving and so shift the supply of loanable funds left. 
B) investment and so shift the demand for loanable funds left. 
C) public saving and so shift the supply of loanable funds left. 
D) None of the above is correct.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is correct?

Accepted Answer

A) Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B) If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C) In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D) None of the above is correct. 
A) Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP. 
B) If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11. 
C) In order to use equity finance, a firm must sell about equal values of stocks and bonds. 
D) None of the above is correct.

Question 18

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A) The government runs a larger deficit. 
B) The government institutes an investment tax credit. 
C) The government replaces the income tax with a consumption tax. 
D) None of the above is correct. 
A) The government runs a larger deficit. 
B) The government institutes an investment tax credit. 
C) The government replaces the income tax with a consumption tax. 
D) None of the above is correct.

Question 19

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Accepted Answer

A) saving and the interest rate 
B) saving but not the interest rate 
C) the interest rate but not saving 
D) neither saving nor the interest rate 
A) saving and the interest rate 
B) saving but not the interest rate 
C) the interest rate but not saving 
D) neither saving nor the interest rate

Question 20

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

Accepted Answer

A) lower than 6 percent.. 
B) 6 percent. 
C) between 6 percent and 8 percent. 
D) higher than 8 percent. 
A) lower than 6 percent.. 
B) 6 percent. 
C) between 6 percent and 8 percent. 
D) higher than 8 percent.

Exam 13: Saving, Investment, and the Financial System

Which of the following would both make the interest rate on a bond higher than otherwise?

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

Scenario 13-2. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. -Refer to Scenario 13-2. For this economy, national saving is equal to

Which of the following are effects of an increased budget deficit?

Which of the following is a certificate of indebtedness?

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

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

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

Borrowers can (and sometimes do) default on their loans when

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

If a firm sells a total of 100 shares of stock, then

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

If Japan goes from a small budget deficit to a large budget deficit, it will reduce

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

Which of the following is correct?

Which of the following events could explain an increase in interest rates together with an increase in investment?

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

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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