Question 1

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A)   The government goes from a surplus to a deficit.
B)   The government repeals an investment tax credit.
C)   The government replaces a consumption tax with an income tax.
D)   None of the above is correct.

Question 2

An increase in the government's budget deficit means

Accepted Answer

A)   public saving is greater than $0 and increasing.
B)   public saving is greater than $0 and decreasing.
C)   public saving is less than $0 and increasing.
D)   public saving is less than $0 and decreasing.

Question 3

A bond buyer is a

Accepted Answer

A)   saver. Long term bonds have less risk than short term bonds.
B)   saver. Long term bonds have more risk than short term bonds.
C)   borrower. Long term bonds have less risk than short term bonds.
D)   borrower. Long term bonds have more risk than short term bonds.

Question 4

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.

Question 5

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)   both Midwestern corporation and Southern corporation
B)   Midwestern corporation but not Southern corporation
C)   Southern corporation but not Midwestern corporation
D)   neither Midwestern nor Southern corporation

Question 6

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Accepted Answer

A) True 
 B)False

Question 7

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices.
a. "I am in a high federal income tax bracket and I don't want to take very much risk."
b. "I want a high return and I am willing to take a lot of risk to get it."
c. "I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a. A municipal bond. Municipal bonds gen...

Question 10

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T...

Question 11

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

Accepted Answer

A)   and quantity of loanable funds rises.
B)   and quantity of loanable funds falls.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.

Question 12

Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?

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

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Accepted Answer

A)   The interest rate would decrease.
B)   Investment would decrease.
C)   The standard of living would eventually rise.
D)   The supply of loanable funds would shift right.

Question 14

Public saving is T - G, while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 15

A larger budget surplus

Accepted Answer

A)   raises the interest rate and investment.
B)   reduces the interest rate and investment.
C)   raises the interest rate and reduces investment.
D)   reduces the interest rate and raises investment.

Question 16

Other things being constant, when a firm sells new shares of stock, the

Accepted Answer

A)   supply of the stock increases and the price decreases.
B)   supply of the stock decreases and the price increases.
C)   demand for the stock increases and the price increases.
D)   demand for the stock decreases and the price decreases.

Question 17

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Accepted Answer

A)   is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
B)   is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.
C)   is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
D)   is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.

Question 18

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

Its price to earnings ratio is...

Question 19

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Accepted Answer

A)   1,500 and -500, respectively
B)   1,500 and 500, respectively
C)   1,000 and -500, respectively
D)   1,000 and 500, respectively

Question 20

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

Accepted Answer

A) True 
 B)False

Exam 13: Saving, Investment, and the Financial System

Public saving is T - G, while private saving is Y - T - C.

Correct Answer
verified

Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?

Correct Answer
verified

Other things being constant, when a firm sells new shares of stock, the

Correct Answer
verified

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Correct Answer
verified

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct Answer
verified

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Correct Answer
verified

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Correct Answer
verified

A larger budget surplus

Correct Answer
verified

Interest rates fall and investment falls. Which of the following could explain these changes?

Correct Answer
verified

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

Correct Answer
verified

A bond buyer is a

Correct Answer
verified

An increase in the government's budget deficit means

Correct Answer
verified

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Correct Answer
verified

The economy's two most important financial markets are

Correct Answer
verified

Correct Answer
verified
a. A municipal bond. Municipal bonds gen...
View Answer

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?

Correct Answer
verified
Its price to earnings ratio is...
View Answer

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

Correct Answer
verified

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.

Correct Answer
verified

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Correct Answer
verified
Investment = $100, T...
View Answer

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

Public saving is T - G, while private saving is Y - T - C.

Correct AnswerverifiedShow Answer

Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

Other things being constant, when a firm sells new shares of stock, the

Correct AnswerverifiedShow Answer

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Correct AnswerverifiedShow Answer

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to 3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public saving?

Correct AnswerverifiedShow Answer

A larger budget surplus

Correct AnswerverifiedShow Answer

Interest rates fall and investment falls. Which of the following could explain these changes?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A bond buyer is a

Correct AnswerverifiedShow Answer

An increase in the government's budget deficit means

Correct AnswerverifiedShow Answer

You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds

Correct AnswerverifiedShow Answer

The economy's two most important financial markets are

Correct AnswerverifiedShow Answer

Correct Answerverifieda. A municipal bond. Municipal bonds gen...View AnswerShow Answer

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?

Correct AnswerverifiedIts price to earnings ratio is...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Correct AnswerverifiedInvestment = $100, T...View AnswerShow Answer

Which of the following would not be a result of replacing the income tax with a consumption tax so that interest income was no longer taxed?

Correct AnswerverifiedShow Answer

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a. A municipal bond. Municipal bonds gen...
View Answer

Correct Answer
verified
Its price to earnings ratio is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Investment = $100, T...
View Answer

Correct Answer
verified