Question 1

Which of the following best describes a characteristic of a bond?

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) The interest paid by a bond depends on its price. 
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) The interest paid by a bond depends on its price. D

Question 2

Australia has recently implemented a national sales tax. If that country uses the proceeds from this tax to reduce income tax rates, what happens in the loanable funds market?

Accepted Answer

The supply of loanable funds shifts right. This causes the interest rate to fall. Both investment and saving rise.

Question 3

If there is surplus of loanable funds, which of the following is most likely to happen?

Accepted Answer

A) The supply for loanable funds shifts right and the demand shifts left. 
B) The supply for loanable funds shifts left and the demand shifts right. 
C) Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. 
A) The supply for loanable funds shifts right and the demand shifts left. 
B) The supply for loanable funds shifts left and the demand shifts right. 
C) Neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) Neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. D

Question 4

What is public saving equal to?

Accepted Answer

A) national saving 
B) net exports 
C) taxes minus government spending 
D) government saving minus taxes 
A) national saving 
B) net exports 
C) taxes minus government spending 
D) government saving minus taxes

Question 5

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A) The supply of loanable funds would shift right. 
B) The demand for loanable funds would shift right. 
C) The supply of loanable funds would shift left. 
D) The demand for loanable funds would shift left. 
A) The supply of loanable funds would shift right. 
B) The demand for loanable funds would shift right. 
C) The supply of loanable funds would shift left. 
D) The demand for loanable funds would shift left.

Question 6

Buskins Corporation has issued 2 million shares. Its earnings were $10 million of which it retained $6 million. What was the dividend per share?

Accepted Answer

A) $2 
B) $3 
C) $5 
D) $8 
A) $2 
B) $3 
C) $5 
D) $8

Question 7

If the current market interest rate for loanable funds is above the equilibrium level, which of the following will most likely happen?

Accepted Answer

A) The quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will rise. 
B) The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will rise. 
C) The quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will fall. 
D) The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will fall. 
A) The quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will rise. 
B) The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will rise. 
C) The quantity of loanable funds demanded will exceed the quantity of loanable funds supplied and the interest rate will fall. 
D) The quantity of loanable funds supplied will exceed the quantity of loanable funds demanded and the interest rate will fall.

Question 8

Generally, if people expect a company to have higher future profits, the price of the stock will be driven down.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A) Interest rates would rise. 
B) Interest rates would be unaffected. 
C) Interest rates would fall. 
D) The change in the interest rate would be ambiguous. 
A) Interest rates would rise. 
B) Interest rates would be unaffected. 
C) Interest rates would fall. 
D) The change in the interest rate would be ambiguous.

Question 10

Suppose that interest rates fall and investment falls. Which of the following best explains these changes?

Accepted Answer

A) The government went from a surplus to a deficit. 
B) The government has repealed an investment tax credit. 
C) The government has replaced a consumption tax with an income tax. 
D) The government is allowing nontaxable savings deposits of up to $5000 per year. 
A) The government went from a surplus to a deficit. 
B) The government has repealed an investment tax credit. 
C) The government has replaced a consumption tax with an income tax. 
D) The government is allowing nontaxable savings deposits of up to $5000 per year.

Question 11

Which of the following best defines a mutual fund?

Accepted Answer

A) It is a financial market where small firms agree to sell stocks and bonds to raise funds. 
B) It is a fund set aside by a local government to lend to small firms who want to invest in projects that are beneficial to the firm and community. 
C) It is an institution that sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) It is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks and bonds. 
A) It is a financial market where small firms agree to sell stocks and bonds to raise funds. 
B) It is a fund set aside by a local government to lend to small firms who want to invest in projects that are beneficial to the firm and community. 
C) It is an institution that sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) It is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks and bonds.

Question 12

What does a general, persistent decline in stock prices signal about an economy?

Accepted Answer

A) that the economy is about to enter a boom period because people will be able to buy stock for less money 
B) that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits 
C) nothing about the business cycle because stock prices can fall for many reasons 
D) that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past 
A) that the economy is about to enter a boom period because people will be able to buy stock for less money 
B) that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits 
C) nothing about the business cycle because stock prices can fall for many reasons 
D) that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past

Question 13

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then domestic investment and national saving are both $1 billion.

Accepted Answer

A) True 
 B)False

Question 14

Suppose that in a closed economy GDP is equal to 12,000, taxes are equal to 1500, consumption equals 6800, and government expenditures equal 2500. What is national saving?

Accepted Answer

A) 4200 
B) 2700 
C) 1200 
D) 1000 
A) 4200 
B) 2700 
C) 1200 
D) 1000

Question 15

Identify each of the following acts as representing either saving or investment.
a.Fred uses some of his income to buy government bonds.
b.Julie takes some of her income and buys mutual funds.
c.Alex purchases a new truck for his delivery business using borrowed funds.
d.Elaine uses some of her income to buy stock in a major corporation,
e.Henrietta hires a builder to construct a new home using borrowed funds.

Accepted Answer

a.Fred is saving.
b.Julie is s

Question 16

Which of the following terms refers to the amount of revenue a firm receives for the sale of its products, minus its costs of production, as measured by its accountants?

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 17

Suppose the market for loanable funds is in equilibrium. Using the table below, what is the quantity of funds demanded?

Accepted Answer

A) $25 billion 
B) $20 billion 
C) $15 billion 
D) $10 billion 
A) $25 billion 
B) $20 billion 
C) $15 billion 
D) $10 billion

Question 18

When a corporation experiences financial problems, bondholders are paid before shareholders.

Accepted Answer

A) True 
 B)False

Question 19

Assuming that all else remains equal, when people become more optimistic about a company's future, which of the following is most likely to happen to the company's stock?

Accepted Answer

A) The supply of the stock and the price will both rise. 
B) The supply of the stock and the price will both fall. 
C) The demand for the stock and the price will both rise. 
D) The demand for the stock and the price will both fall. 
A) The supply of the stock and the price will both rise. 
B) The supply of the stock and the price will both fall. 
C) The demand for the stock and the price will both rise. 
D) The demand for the stock and the price will both fall.

Question 20

Suppose that the government were to replace the income tax with a consumption tax. What would happen to the interest rate and investment, respectively?

Accepted Answer

A) increase and increase 
B) decrease and decrease 
C) increase and decrease 
D) decrease and increase 
A) increase and increase 
B) decrease and decrease 
C) increase and decrease 
D) decrease and increase

Which of the following best describes a characteristic of a bond?

Australia has recently implemented a national sales tax. If that country uses the proceeds from this tax to reduce income tax rates, what happens in the loanable funds market?

If there is surplus of loanable funds, which of the following is most likely to happen?

What is public saving equal to?

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

Buskins Corporation has issued 2 million shares. Its earnings were $10 million of which it retained $6 million. What was the dividend per share?

If the current market interest rate for loanable funds is above the equilibrium level, which of the following will most likely happen?

Generally, if people expect a company to have higher future profits, the price of the stock will be driven down.

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

Suppose that interest rates fall and investment falls. Which of the following best explains these changes?

Which of the following best defines a mutual fund?

What does a general, persistent decline in stock prices signal about an economy?

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then domestic investment and national saving are both $1 billion.

Suppose that in a closed economy GDP is equal to 12,000, taxes are equal to 1500, consumption equals 6800, and government expenditures equal 2500. What is national saving?

Which of the following terms refers to the amount of revenue a firm receives for the sale of its products, minus its costs of production, as measured by its accountants?

Suppose the market for loanable funds is in equilibrium. Using the table below, what is the quantity of funds demanded?

When a corporation experiences financial problems, bondholders are paid before shareholders.

Assuming that all else remains equal, when people become more optimistic about a company's future, which of the following is most likely to happen to the company's stock?

Suppose that the government were to replace the income tax with a consumption tax. What would happen to the interest rate and investment, respectively?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 8: Saving, Investment, and the Financial System

Which of the following best describes a characteristic of a bond?

Australia has recently implemented a national sales tax. If that country uses the proceeds from this tax to reduce income tax rates, what happens in the loanable funds market?

If there is surplus of loanable funds, which of the following is most likely to happen?

What is public saving equal to?

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

Buskins Corporation has issued 2 million shares. Its earnings were $10 million of which it retained $6 million. What was the dividend per share?

If the current market interest rate for loanable funds is above the equilibrium level, which of the following will most likely happen?

Generally, if people expect a company to have higher future profits, the price of the stock will be driven down.

Which of the following would most likely happen in the market for loanable funds if the government were to increase the tax on interest income?

Suppose that interest rates fall and investment falls. Which of the following best explains these changes?

Which of the following best defines a mutual fund?

What does a general, persistent decline in stock prices signal about an economy?

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then domestic investment and national saving are both $1 billion.

Suppose that in a closed economy GDP is equal to 12,000, taxes are equal to 1500, consumption equals 6800, and government expenditures equal 2500. What is national saving?

Which of the following terms refers to the amount of revenue a firm receives for the sale of its products, minus its costs of production, as measured by its accountants?

Suppose the market for loanable funds is in equilibrium. Using the table below, what is the quantity of funds demanded?

When a corporation experiences financial problems, bondholders are paid before shareholders.

Assuming that all else remains equal, when people become more optimistic about a company's future, which of the following is most likely to happen to the company's stock?

Suppose that the government were to replace the income tax with a consumption tax. What would happen to the interest rate and investment, respectively?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

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 Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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