Question 1

Generally,if people begin to expect a company to have higher future profits,the price of the company's stock will begin to decrease.

Accepted Answer

A) True 
 B)False

Question 2

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below,the economy ...

Question 3

Morgan,a financial advisor,has told her clients the following things.Which of her statements is not correct?

Accepted Answer

A)   "U.S.government bonds generally pay a higher rate of interest than corporate bonds."
B)   "The interest received on corporate bonds is taxable."
C)   "U.S.government bonds have the lowest default risk."
D)   "If you purchase a municipal bond,you can sell it before it matures." A

Question 4

Suppose in some country that the first $5,000 of interest income is exempt from income tax.If the government then removed this exemption

Accepted Answer

A)   the interest rate and investment would rise.
B)   the interest rate would rise and investment would fall.
C)   the interest rate would fall and investment would rise.
D)   the interest rate and investment would fall.

Question 5

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.

Question 6

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A)   Federal Reserve system.
B)   banking system.
C)   monetary system.
D)   financial system.

Question 7

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment ...

Question 8

If the budget deficit increases then

Accepted Answer

A)   saving and the interest rate rise
B)   saving rises and the interest rate falls
C)   saving falls and the interest rate rises
D)   saving and the interest rate falls

Question 9

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 10

The financial system coordinates investment and saving,which are important determinants of long-run real GDP.

Accepted Answer

A) True 
 B)False

Question 11

Norberto is opening a bicycle shop,and his monthly expenditures to get the shop up and running exceed his monthly income.Norberto is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.

Question 12

Suppose the government changed the tax laws,with the result that people were encouraged to consume more and save less.Using the loanable funds model,a consequence would be

Accepted Answer

A)   lower interest rates and lower investment.
B)   lower interest rates and greater investment.
C)   higher interest rates and lower investment.
D)   higher interest rates and higher investment.

Question 13

The economy's two most important financial markets are

Accepted Answer

A)   the investment market and the saving market.
B)   the bond market and the stock market.
C)   banks and the stock market.
D)   financial markets and financial institutions. B

Question 14

Mallard Corporation had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of Mallard stock?

Accepted Answer

A)   $15
B)   $30
C)   $45
D)   None of the above is correct.

Question 15

When a country saves a larger portion of its GDP than it did before,it will have

Accepted Answer

A)   more capital and higher productivity.
B)   more capital and lower productivity.
C)   less capital and higher productivity.
D)   less capital and lower productivity. A

Question 16

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.

Question 17

Which of the following would necessarily increase the equilibrium interest rate?

Accepted Answer

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

Question 18

Other things the same,the effects of an increase in transfer payments on the government's budget deficit will lead to

Accepted Answer

A)   greater investment.
B)   a higher interest rate.
C)   higher public saving.
D)   All of the above are correct.

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Exam 26: Saving,investment,and the Financial System

Generally,if people begin to expect a company to have higher future profits,the price of the company's stock will begin to decrease.

Correct Answer
verified

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct Answer
verified
As shown in the graph below,the economy ...
View Answer

Morgan,a financial advisor,has told her clients the following things.Which of her statements is not correct?

Correct Answer
verified
A

Suppose in some country that the first $5,000 of interest income is exempt from income tax.If the government then removed this exemption

Correct Answer
verified

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?

Correct Answer
verified

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct Answer
verified

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct Answer
verified
When the interest rate rises investment ...
View Answer

If the budget deficit increases then

Correct Answer
verified

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

Correct Answer
verified

The financial system coordinates investment and saving,which are important determinants of long-run real GDP.

Correct Answer
verified

Norberto is opening a bicycle shop,and his monthly expenditures to get the shop up and running exceed his monthly income.Norberto is best described as a

Correct Answer
verified

Suppose the government changed the tax laws,with the result that people were encouraged to consume more and save less.Using the loanable funds model,a consequence would be

Correct Answer
verified

The economy's two most important financial markets are

Correct Answer
verified
B

Mallard Corporation had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of Mallard stock?

Correct Answer
verified

When a country saves a larger portion of its GDP than it did before,it will have

Correct Answer
verified
A

Correct Answer
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Which of the following would necessarily increase the equilibrium interest rate?

Correct Answer
verified

Other things the same,the effects of an increase in transfer payments on the government's budget deficit will lead to

Correct Answer
verified

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

Correct Answer
verified

Mutual funds are a type of financial intermediary.

Correct Answer
verified

Exam 26: Saving,investment,and the Financial System

Generally,if people begin to expect a company to have higher future profits,the price of the company's stock will begin to decrease.

Correct AnswerverifiedShow Answer

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below,the economy ...View AnswerShow Answer

Morgan,a financial advisor,has told her clients the following things.Which of her statements is not correct?

Correct AnswerverifiedA

Suppose in some country that the first $5,000 of interest income is exempt from income tax.If the government then removed this exemption

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct AnswerverifiedShow Answer

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct AnswerverifiedWhen the interest rate rises investment ...View AnswerShow Answer

If the budget deficit increases then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The financial system coordinates investment and saving,which are important determinants of long-run real GDP.

Correct AnswerverifiedShow Answer

Norberto is opening a bicycle shop,and his monthly expenditures to get the shop up and running exceed his monthly income.Norberto is best described as a

Correct AnswerverifiedShow Answer

Suppose the government changed the tax laws,with the result that people were encouraged to consume more and save less.Using the loanable funds model,a consequence would be

Correct AnswerverifiedShow Answer

The economy's two most important financial markets are

Correct AnswerverifiedB

Mallard Corporation had a price-earnings ratio of 15,paid a dividend of $1,and retained earnings of $2 a share.What was the price of a share of Mallard stock?

Correct AnswerverifiedShow Answer

When a country saves a larger portion of its GDP than it did before,it will have

Correct AnswerverifiedA

Correct AnswerverifiedShow Answer

Which of the following would necessarily increase the equilibrium interest rate?

Correct AnswerverifiedShow Answer

Other things the same,the effects of an increase in transfer payments on the government's budget deficit will lead to

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Mutual funds are a type of financial intermediary.

Correct AnswerverifiedShow Answer

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Correct Answer
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As shown in the graph below,the economy ...
View Answer

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A

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When the interest rate rises investment ...
View Answer

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B

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A

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