Question 1

Which of the following best explains why the debt-to-GDP ratio important?

Accepted Answer

A)  If GDP is rising slower than debt, the government is, in some sense, living within its means.
B)  A declining debt-to-GDP ratio raises concerns about a country's financial difficulties.
C)  It is a better measure than the level of debt because it takes into account a country's net exports.
D)  It allows international comparisons of how indebted countries are.E) C) and D)
F) None of the above

Question 2

In a closed economy, what is private saving?

Accepted Answer

A)  the amount of income that households have left after paying for their 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)  always equal to investmentE) None of the above
F) B) and C)

Question 3

Table 8-1
 
-Refer to Table 8-1. What were Hershey's earnings per share?

Accepted Answer

A)  $0.61
B)  $1.31
C)  $1.64
D)  $38E) A) and C)
F) C) and D)

Question 4

If other things are the same, will countries that tax saving less have lower or higher interest rates and investment than other countries?

Accepted Answer

A)  lower interest rates and higher investment
B)  lower interest rates and lower investment
C)  higher interest rates and higher investment
D)  higher interest rates and lower investmentE) All of the above
F) A) and C)

Question 5

If the nominal interest rate is 8 percent and the real interest rate is 2 percent, what is the inflation rate?

Accepted Answer

A)  4 percent
B)  6 percent
C)  10 percent
D)  16 percentE) A) and D)
F) C) and D)

Question 6

Assume that the bonds below have the same term and principal and that the province or local government that issues the municipal bond has a good credit rating. Which listing of bonds is ordered from the one that pays the most interest to the one that pays the least interest?

Accepted Answer

A)  corporate bond, municipal bond, federal government bond
B)  corporate bond, federal government bond, municipal bond
C)  municipal bond, federal government bond, corporate bond
D)  federal government bond, municipal bond, corporate bondE) A) and B)
F) A) and C)

Question 7

Which of the following best characterizes the lending strategy of banks?

Accepted Answer

A)  Banks make most their profits from account fees.
B)  Banks lend mostly to large and familiar companies rather than smaller local firms.
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors.
D)  Banks lend money both for investment and consumption purposes.E) A) and B)
F) A) and D)

Question 8

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following situations is most likely?

Accepted Answer

A)  The 6 percent bond is less risky than the 3 percent bond.
B)  The 6 percent bond is a Canadian government bond, and the 3 percent bond is a junk bond.
C)  The 6 percent bond has a longer term than the 3 percent bond.
D)  The 6 percent bond is a Canadian government bond, and the 3 percent bond is a provincial bond.E) A) and C)
F) B) and C)

Question 9

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 10

What is the source of the supply of and demand for loanable funds, respectively?

Accepted Answer

A)  saving and investment
B)  investment and saving
C)  saving and saving
D)  investment and investmentE) A) and B)
F) A) and C)

Question 11

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. Which of the following would we expect?

Accepted Answer

A)  This would raise the demand for existing shares of the stock, causing its price to rise.
B)  This would decrease the demand for existing shares of the stock, causing its price to fall.
C)  This would raise the supply of the existing shares of stock, causing its price to rise.
D)  This would raise the supply of the existing shares of stock, causing its price to fall.E) B) and D)
F) B) and C)

Question 12

If the current market interest rate for loanable funds is below the equilibrium level, which of the following 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.E) A) and B)
F) B) and D)

Question 13

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 14

Which of the following terms refers to the situation when the tax revenue of the federal government exceeds government spending?

Accepted Answer

A)  budget deficit
B)  budget surplus
C)  national debt
D)  trade deficitE) A) and B)
F) All of the above

Question 15

Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 2500, consumption equals 7500, and government expenditures equal 3000. What is public saving?

Accepted Answer

A)  -600
B)  -500
C)  500
D)  600E) B) and C)
F) A) and D)

Question 16

In a closed economy, the fact that total income equals total expenditure is reflected by the GDP identity Y = C + I + G.
a.Starting from the GDP identity, show that national saving (S) must be equal to investment. Show that an increase in government spending reduces national saving.
b.Rewrite the GDP identity by introducing taxes (T). In this new form of the GDP relationship, identify private saving and public saving. Show that an increase in taxes has no effect on national saving.
c.Is the equation S = I true for an open economy? Could you explain why or why not?

Accepted Answer

a.We rewrite the GDP identity Y = C + I ...

Question 17

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 18

The country of Hykania does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $3 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Hyrkania is $4 billion. What is investment in Hyrkania?

Accepted Answer

A)  $4 billion
B)  $3 billion
C)  $2 billion
D)  There is not enough information to answer the question.E) All of the above
F) B) and D)

Question 19

How is a perpetuity distinguished from other bonds?

Accepted Answer

A)  It pays continuously compounded interest.
B)  It pays interest only when it matures.
C)  It never matures.
D)  It will be used to purchase another bond when it matures unless the owner specifies otherwise.E) None of the above
F) C) and D)

Question 20

Which of the following best defines a corporation's earnings?

Accepted Answer

A)  They are the amount of revenue the corporation receives for the sale of its products, minus its costs of production, as measured by its accountants, minus the dividends paid out.
B)  They are the amount of revenue the corporation receives for the sale of its products, minus its direct and indirect costs of production, as measured by its economists, minus the dividends paid out.
C)  They are the amount of revenue the corporation receives for the sale of its products, minus its costs of production, as measured by its accountants.
D)  They are the amount of revenue it receives for the sale of its products, minus its direct and indirect costs of production, as measured by its economists.E) C) and D)
F) A) and D)

Exam 8: Saving, Investment, and the Financial System

Which of the following best explains why the debt-to-GDP ratio important?

Correct Answer
verified

If the nominal interest rate is 8 percent and the real interest rate is 2 percent, what is the inflation rate?

Correct Answer
verified

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

Correct Answer
verified

Which of the following best defines a corporation's earnings?

Correct Answer
verified

In a closed economy, what is private saving?

Correct Answer
verified

Which of the following best characterizes the lending strategy of banks?

Correct Answer
verified

In a closed economy, investment must be equal to private saving.

Correct Answer
verified

If other things are the same, will countries that tax saving less have lower or higher interest rates and investment than other countries?

Correct Answer
verified

How is a perpetuity distinguished from other bonds?

Correct Answer
verified

Public saving is equal to national saving minus private saving.

Correct Answer
verified

Correct Answer
verified

Table 8-1 -Refer to Table 8-1. What were Hershey's earnings per share?

Correct Answer
verified

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. Which of the following would we expect?

Correct Answer
verified

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following situations is most likely?

Correct Answer
verified

Assume that the bonds below have the same term and principal and that the province or local government that issues the municipal bond has a good credit rating. Which listing of bonds is ordered from the one that pays the most interest to the one that pays the least interest?

Correct Answer
verified

What is the source of the supply of and demand for loanable funds, respectively?

Correct Answer
verified

Which of the following terms refers to the situation when the tax revenue of the federal government exceeds government spending?

Correct Answer
verified

Correct Answer
verified
a.We rewrite the GDP identity Y = C + I ...
View Answer

Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 2500, consumption equals 7500, and government expenditures equal 3000. What is public saving?

Correct Answer
verified

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct Answer
verified
Market for...
View Answer

Exam 8: Saving, Investment, and the Financial System

Which of the following best explains why the debt-to-GDP ratio important?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 8 percent and the real interest rate is 2 percent, what is the inflation rate?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following best defines a corporation's earnings?

Correct AnswerverifiedShow Answer

In a closed economy, what is private saving?

Correct AnswerverifiedShow Answer

Which of the following best characterizes the lending strategy of banks?

Correct AnswerverifiedShow Answer

In a closed economy, investment must be equal to private saving.

Correct AnswerverifiedShow Answer

If other things are the same, will countries that tax saving less have lower or higher interest rates and investment than other countries?

Correct AnswerverifiedShow Answer

How is a perpetuity distinguished from other bonds?

Correct AnswerverifiedShow Answer

Public saving is equal to national saving minus private saving.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Table 8-1 -Refer to Table 8-1. What were Hershey's earnings per share?

Correct AnswerverifiedShow Answer

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. Which of the following would we expect?

Correct AnswerverifiedShow Answer

Jerry has the choice of two bonds, one that pays 3 percent interest and one that pays 6 percent interest. Which of the following situations is most likely?

Correct AnswerverifiedShow Answer

Assume that the bonds below have the same term and principal and that the province or local government that issues the municipal bond has a good credit rating. Which listing of bonds is ordered from the one that pays the most interest to the one that pays the least interest?

Correct AnswerverifiedShow Answer

What is the source of the supply of and demand for loanable funds, respectively?

Correct AnswerverifiedShow Answer

Which of the following terms refers to the situation when the tax revenue of the federal government exceeds government spending?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.We rewrite the GDP identity Y = C + I ...View AnswerShow Answer

Suppose that in a closed economy GDP is equal to 15,000, taxes are equal to 2500, consumption equals 7500, and government expenditures equal 3000. What is public saving?

Correct AnswerverifiedShow Answer

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
a.We rewrite the GDP identity Y = C + I ...
View Answer

Correct Answer
verified

Correct Answer
verified
Market for...
View Answer