Question 1

In macroeconomics, _____ refers to the purchase of new capital.

Accepted Answer

investment

Question 2

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False  True

Question 3

Refer to Scenario 26-1. For this economy, private saving amounts to

Accepted Answer

A)  $6,000.
B)  $26,000.
C)  $13,000.
D)  −$26,000. B

Question 4

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

The answer of Stock in Frozen Dreams, an ice cream...

Question 5

If the Apple corporation sells a bond it is

Accepted Answer

A)  borrowing directly from the public.
B)  borrowing indirectly from the public.
C)  selling shares of ownership directly to the public.
D)  selling shares of ownership indirectly to the public.

Question 6

Which of the following statements about the term of a bond is correct?

Accepted Answer

A)  Term refers to the various characteristics of a bond, including its interest rate and tax treatment.
B)  The term of a bond is determined entirely by its credit risk.
C)  The term of a bond is determined entirely by how much sales commission the buyer of the bond pays when he or she purchases the bond.
D)  Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Question 7

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Question 8

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Accepted Answer

A)  Both Altas' sound finances and the long term of the bond.
B)  Atlas' sound finances but not the long term of the bond.
C)  The long term of the bond but not Atlas' sound finances.
D)  Neither Atlas' sound finances nor the long term of the bond.

Question 9

What are the basic differences between bonds and stocks?

Accepted Answer

The answer of What are the basic differences between bonds...

Question 10

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.

Question 11

A bond that never matures is known as

Accepted Answer

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

Question 12

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Accepted Answer

A)  The demand for loanable funds shifted rightward.
B)  The demand for loanable funds shifted leftward.
C)  The supply of loanable funds shifted rightward.
D)  The supply of loanable funds shifted leftward.

Question 13

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

Accepted Answer

A)  The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower.
B)  The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher.
C)  Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone.
D)  Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.

Question 14

What variable adjusts to balance demand and supply in the market for loanable funds?

Accepted Answer

The answer of What variable adjusts to balance demand and...

Question 15

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

Accepted Answer

A)  and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)  and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)  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)  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 16

Other things the same, when the interest rate falls, people would want to lend

Accepted Answer

A)  less, making the supply of loanable funds increase.
B)  more, making the supply of loanable funds decrease.
C)  less, making the quantity of loanable funds supplied decrease.
D)  more, making the quantity of loanable funds supplied increase.

Question 17

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

Accepted Answer

A) True 
 B)False

Question 18

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

Accepted Answer

A) True 
 B)False

Question 19

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)  crowding out would not be a consequence of an increase in the budget deficit.
B)  higher interest rates would not be a consequence of an increase in the budget deficit.
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease.
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits.

Question 20

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

In macroeconomics, _____ refers to the purchase of new capital.

Lenders buy bonds and borrowers sell them.

Refer to Scenario 26-1. For this economy, private saving amounts to

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

If the Apple corporation sells a bond it is

Which of the following statements about the term of a bond is correct?

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

What are the basic differences between bonds and stocks?

We associate the term debt finance with

A bond that never matures is known as

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

What variable adjusts to balance demand and supply in the market for loanable funds?

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

Other things the same, when the interest rate falls, people would want to lend

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.