Question 1

Which statement best describes the relationship between government deficit and government debt?

Accepted Answer

A)  If the government currently has a budget deficit,currently it must also have a debt. 
B)  If the government currently has a budget deficit,the debt is increasing. 
C)  If the government currently has a budget deficit,government expenditures must be less than taxes. 
D)  If the government currently has a budget deficit,national savings must be increasing. 
A)  If the government currently has a budget deficit,currently it must also have a debt. 
B)  If the government currently has a budget deficit,the debt is increasing. 
C)  If the government currently has a budget deficit,government expenditures must be less than taxes. 
D)  If the government currently has a budget deficit,national savings must be increasing.

Question 2

Table 8-2
The following table shows stock prices and volumes for a few hypothetical companies.  
-Refer to Table 8-2.Which company had the highest dollar dividend?

Accepted Answer

A)  P 
B)  Q 
C)  R 
D)  S 
A)  P 
B)  Q 
C)  R 
D)  S

Question 3

Identify each of the following actions 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 hires a contractor to add two additional examination rooms to his dental office using borrowed funds.
d.Elaine uses some of her savings to buy stock for her new clothing boutique.
e.Henrietta hires a builder to construct a new home using borrowed funds.

Accepted Answer

a.Fred is saving. b.Julie is s

Question 4

Which equation most simply represents GDP in a closed economy?

Accepted Answer

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

Question 5

Suppose the following equations give the demand and supply for loanable funds in billions of dollars; r is the real interest rate in percentage points :
QD = 160-10r
QS = -20 + 20r
a)How do the demand and supply equations change if the government deficit increased by $5 billion?
b)Calculate the new equilibrium interest rate and quantity of loanable funds.(Compare this to the zero-deficit equilibrium.)
c)Calculate the changes in consumer and producer surplus due to the increase in government deficit.Who gains and who loses from the change in government deficit?

Accepted Answer

a)Public savings decreases by the amount

Question 6

Queen City Sausage Ltd.stock is selling at $40 per share.It has retained earnings of $1.50 per share,and dividends of $0.50 per share.What is the price / earnings ratio?

Accepted Answer

A)  0.06 
B)  16 
C)  20 
D)  100 
A)  0.06 
B)  16 
C)  20 
D)  100

Question 7

Suppose that consumption is 7500,taxes are 1800,and government expenditures are 1500.If national saving is 1500 and the economy is closed,what is the GDP?

Accepted Answer

A)  9500 
B)  10,000 
C)  10,500 
D)  11,200 
A)  9500 
B)  10,000 
C)  10,500 
D)  11,200

Question 8

Which statement best defines stock indexes?

Accepted Answer

A)  They are the average of a group of stock prices. 
B)  They are the average of a group of stock yields. 
C)  They are reports in the newspaper that report on the price of the stock and earnings of the corporation. 
D)  They are measures of the risk relative to the profitability of corporations. 
A)  They are the average of a group of stock prices. 
B)  They are the average of a group of stock yields. 
C)  They are reports in the newspaper that report on the price of the stock and earnings of the corporation. 
D)  They are measures of the risk relative to the profitability of corporations.

Question 9

In a closed economy,what is public saving?

Accepted Answer

A)  the amount of income that households have left after paying for taxes and consumption 
B)  the amount of income that businesses have left after paying for the factors of production 
C)  the amount of tax revenue that the government has left after paying for its spending 
D)  the amount of total income minus total expenditure 
A)  the amount of income that households have left after paying for taxes and consumption 
B)  the amount of income that businesses have left after paying for the factors of production 
C)  the amount of tax revenue that the government has left after paying for its spending 
D)  the amount of total income minus total expenditure

Question 10

In the small closed economy of San Lucretia,the currency is the denar.Statistics for last year show that private saving was 60 billion denars,taxes were 70 billion denars,government purchases of goods and services were 60 billion denars,there were no transfer payments by the government,and GDP was 400 billion denars.What was investment in San Lucretia?

Accepted Answer

A)  50 billion denars 
B)  60 billion denars 
C)  70 billion denars 
D)  80 billion denars 
A)  50 billion denars 
B)  60 billion denars 
C)  70 billion denars 
D)  80 billion denars

Question 11

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 12

Which term refers to the fall in investment due to government borrowing?

Accepted Answer

A)  the Barro reduction 
B)  the vicious circle 
C)  the Ricardian principle 
D)  crowding out 
A)  the Barro reduction 
B)  the vicious circle 
C)  the Ricardian principle 
D)  crowding out

Question 13

What 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 14

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness

Question 15

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 16

Mount Adams Jazz Corporation has a price of $50,a dividend of $0.50,and retained earnings of $1.00 per share.What is the dividend yield on this stock?

Accepted Answer

A)  0.5 percent 
B)  1 percent 
C)  3.2 percent 
A)  0.5 percent 
B)  1 percent 
C)  3.2 percent

Question 17

What are junk bonds?

Accepted Answer

A)  Junk bonds are those that yield low interest rates. 
B)  Junk bonds are those that never mature. 
C)  Junk bonds refer to bonds that have been resold many times. 
D)  Junk bonds are those issued by financially weak corporations. 
A)  Junk bonds are those that yield low interest rates. 
B)  Junk bonds are those that never mature. 
C)  Junk bonds refer to bonds that have been resold many times. 
D)  Junk bonds are those issued by financially weak corporations.

Question 18

If the current market interest rate for loanable funds is below the equilibrium level,what would we expect to happen?

Accepted Answer

A)  Because there is a surplus of loanable funds,the interest rate will rise. 
B)  Because there is a shortage of loanable funds,the interest rate will rise. 
C)  Because there is a shortage of loanable funds,the interest rate will fall. 
D)  Because there is a surplus of loanable funds,the interest rate will fall. 
A)  Because there is a surplus of loanable funds,the interest rate will rise. 
B)  Because there is a shortage of loanable funds,the interest rate will rise. 
C)  Because there is a shortage of loanable funds,the interest rate will fall. 
D)  Because there is a surplus of loanable funds,the interest rate will fall.

Question 19

Table 8-2
The following table shows stock prices and volumes for a few hypothetical companies.  
-Refer to Table 8-2.Which company had the lowest earnings per share?

Accepted Answer

A)  P 
B)  Q 
C)  R 
D)  S 
A)  P 
B)  Q 
C)  R 
D)  S

Question 20

When the federal government is in debt,it follows that it has a deficit.

Accepted Answer

A) True 
 B)False

Which statement best describes the relationship between government deficit and government debt?

Table 8-2 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-2.Which company had the highest dollar dividend?

Which equation most simply represents GDP in a closed economy?

Queen City Sausage Ltd.stock is selling at $40 per share.It has retained earnings of $1.50 per share,and dividends of $0.50 per share.What is the price / earnings ratio?

Suppose that consumption is 7500,taxes are 1800,and government expenditures are 1500.If national saving is 1500 and the economy is closed,what is the GDP?

Which statement best defines stock indexes?

In a closed economy,what is public saving?

Mutual funds are a type of financial intermediary.

Which term refers to the fall in investment due to government borrowing?

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

What are the basic differences between bonds and stocks?

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.

Mount Adams Jazz Corporation has a price of $50,a dividend of $0.50,and retained earnings of $1.00 per share.What is the dividend yield on this stock?

What are junk bonds?

If the current market interest rate for loanable funds is below the equilibrium level,what would we expect to happen?

Table 8-2 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-2.Which company had the lowest earnings per share?

When the federal government is in debt,it follows that it has a deficit.

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 Small 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 statement best describes the relationship between government deficit and government debt?

Table 8-2 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-2.Which company had the highest dollar dividend?

Which equation most simply represents GDP in a closed economy?

Queen City Sausage Ltd.stock is selling at $40 per share.It has retained earnings of $1.50 per share,and dividends of $0.50 per share.What is the price / earnings ratio?

Suppose that consumption is 7500,taxes are 1800,and government expenditures are 1500.If national saving is 1500 and the economy is closed,what is the GDP?

Which statement best defines stock indexes?

In a closed economy,what is public saving?

Mutual funds are a type of financial intermediary.

Which term refers to the fall in investment due to government borrowing?

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

What are the basic differences between bonds and stocks?

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.

Mount Adams Jazz Corporation has a price of $50,a dividend of $0.50,and retained earnings of $1.00 per share.What is the dividend yield on this stock?

What are junk bonds?

If the current market interest rate for loanable funds is below the equilibrium level,what would we expect to happen?

Table 8-2 The following table shows stock prices and volumes for a few hypothetical companies. -Refer to Table 8-2.Which company had the lowest earnings per share?

When the federal government is in debt,it follows that it has a deficit.

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 Small 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

Filters