Question 1

A mutual fund

Accepted Answer

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

Question 2

In 2009 and 2010, the federal government's budget deficit was about

Accepted Answer

A)   5 percent of GDP, and this was the highest debt-GDP ratio in U.S history.
B)   10 percent of GDP, and this was the highest debt-GDP ratio in U.S history.
C)   5 percent of GDP, and this was the highest debt-GDP ratio since World War II.
D)   10 percent of GDP, and this was the highest debt-GDP ratio since World War II.

Question 3

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the price­earnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Accepted Answer

A)   $15.6 million.
B)   $250 million.
C)   $160 million.
D)   $625 million.

Question 4

A budget surplus

Accepted Answer

A)   occurs when the government has debt equal to zero.
B)   causes government debt to increase.
C)   exists when government spending is greater than tax revenues.
D)   reduces the government's debt.

Question 5

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)   -500
B)   500
C)   2,000
D)   None of the above is correct.

Question 6

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Accepted Answer

A)   $2.05.
B)   $5.00.
C)   $80.00
D)   $50.00.

Question 7

Stock represents

Accepted Answer

A)   a claim to a share of the profits of a firm.
B)   ownership in a firm.
C)   equity finance.
D)   All of the above are correct

Question 8

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 9

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, private saving is equal to

Accepted Answer

A)   $0.3 trillion.
B)   $1.2 trillion.
C)   $1.0 trillion.
D)   $1.7 trillion.

Question 10

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A)   low, indicating that buyers may expect earnings to rise.
B)   low, indicating that buyers may expect earnings to fall.
C)   high, indicating that buyers may expect earnings to rise.
D)   high, indicating that buyers may expect earnings to fall.

Question 11

and are the two most important financial intermediaries.

Accepted Answer

Banks, Mut...

Question 12

A U.S. Treasury bond is a

Accepted Answer

A)   store of value and common medium of exchange.
B)   store of value, but not a common medium of exchange.
C)   a common medium of exchange, but not a store of value.
D)   neither a store of value nor a common medium of exchange.

Question 13

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)   Fran and Miller are both investing.
B)   Fran and Miller are both saving.
C)   Fran is investing; Miller is saving.
D)   Fran is saving; Miller is investing.

Question 14

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Accepted Answer

A)   corporate bond, municipal bond, U.S. government bond
B)   corporate bond, U.S. government bond, municipal bond
C)   municipal bond, U.S. government bond, corporate bond
D)   U.S. government bond, municipal bond, corporate bond

Question 15

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)   C
B)   I
C)   G
D)   None of the above are correct.

Question 16

Which of the following statements is correct?

Accepted Answer

A)   The interest rate that is usually reported is the interest rate that has been corrected for inflation.
B)   The supply of, and demand for, loanable funds depend on the real (rather than nominal)  interest rate.
C)   If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well.
D)   All of the above are correct.

Question 17

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Accepted Answer

A)   C = $8 trillion, G = $3 trillion
B)   C = $13 trillion, G = -$1 trillion
C)   C = $9 trillion, G = $5 trillion
D)   C = $7 trillion, G = $1 trillion

Question 18

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 19

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a. The Venezuelan government bond would ...

Question 20

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Accepted Answer

A)   the demand for loanable funds shifts rightward.
B)   the demand for loanable funds shifts leftward.
C)   the supply of loanable funds shifts rightward.
D)   the supply of loanable funds shifts leftward.

Exam 26: Saving, Investment, and the Financial System

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Correct Answer
verified

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct Answer
verified

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Correct Answer
verified

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Correct Answer
verified

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Correct Answer
verified

A U.S. Treasury bond is a

Correct Answer
verified

Stock represents

Correct Answer
verified

In 2009 and 2010, the federal government's budget deficit was about

Correct Answer
verified

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Correct Answer
verified

Correct Answer
verified
a. The Venezuelan government bond would ...
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

and are the two most important financial intermediaries.

Correct Answer
verified
Banks, Mut...
View Answer

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct Answer
verified

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

Correct Answer
verified

A mutual fund

Correct Answer
verified

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

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

A budget surplus

Correct Answer
verified

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Correct Answer
verified

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the priceearnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Correct AnswerverifiedShow Answer

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct AnswerverifiedShow Answer

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries.

Correct AnswerverifiedShow Answer

If the government institutes policies that diminish incentives to save, then in the loanable funds market

Correct AnswerverifiedShow Answer

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Correct AnswerverifiedShow Answer

A U.S. Treasury bond is a

Correct AnswerverifiedShow Answer

Stock represents

Correct AnswerverifiedShow Answer

In 2009 and 2010, the federal government's budget deficit was about

Correct AnswerverifiedShow Answer

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The Venezuelan government bond would ...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

and are the two most important financial intermediaries.

Correct AnswerverifiedBanks, Mut...View AnswerShow Answer

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct AnswerverifiedShow Answer

Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, private saving is equal to

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A budget surplus

Correct AnswerverifiedShow Answer

Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate?

Correct AnswerverifiedShow Answer

The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the price­earnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Correct AnswerverifiedShow Answer

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a. The Venezuelan government bond would ...
View Answer

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Banks, Mut...
View Answer

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The number of shares of Biggie Corporation stock outstanding in 2013 was 100 million. In 2013, Biggie stock paid a dividend of $2.50 per share and its dividend yield was 2 percent. If the priceearnings ratio is 20, then Biggie's total earnings in 2013 amounted to

Correct Answer
verified