Question 1

The country of Bienmundo does not trade with any other country.Its GDP is $30 billion.Its government purchases $5 billion worth of goods and services each year,collects $7 billion in taxes,and provides $3 billion in transfer payments to households.Private saving in Bienmundo amounts to $5 billion.What are consumption and investment in Bienmundo?

Accepted Answer

A)   $18 billion and $5 billion,respectively
B)   $21 billion and $4 billion,respectively
C)   $13 billion and $7 billion,respectively
D)   There is not enough information to answer the question.E) All of the above
F) A) and C)

Question 2

If Congress increased the tax rate on interest income,investment

Accepted Answer

A)   would increase and saving would decrease.
B)   would decrease and saving would increase.
C)   and saving would increase.
D)   and saving would decrease.E) None of the above
F) B) and C)

Question 3

Which of the following would likely make the interest rate on a bond higher than otherwise?

Accepted Answer

A)   both high credit risk and a long term
B)   high credit risk but not a long term
C)   a long term but not a high credit risk
D)   neither high credit risk nor a long termE) B) and D)
F) A) and C)

Question 4

The purchase of a new house is the one form of

Accepted Answer

A)   investment that is financed by private saving rather than public saving.
B)   household spending that is not counted as part of investment in the national income accounts.
C)   household spending that is investment rather than consumption.
D)   household spending that does not contribute to GDP.E) All of the above
F) B) and D)

Question 5

Scenario 18-3.Assume the following information for an imaginary,open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
-Refer to Scenario 18-3.This economy's government is running a

Accepted Answer

A)   budget deficit of $50.
B)   budget deficit of $80.
C)   budget surplus of $50.
D)   budget surplus of $80.E) B) and C)
F) A) and B)

Question 6

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A)   S = I - G
B)   I = Y - C + G
C)   Y = C + I + G
D)   Y = C + I + G + NXE) A) and B)
F) All of the above

Question 7

Two of the economy's most important financial intermediaries are

Accepted Answer

A)   suppliers of funds and demanders of funds.
B)   banks and the bond market.
C)   the stock market and the bond market.
D)   banks and mutual funds.E) A) and B)
F) A) and C)

Question 8

According to the loanable funds model,which of the following events would result in higher interest rates and greater saving?

Accepted Answer

A)   Firms become pessimistic about the future and,as a result,they cut back on their plans to buy new equipment and build new factories.
B)   The government goes from running a budget deficit to running a budget surplus.
C)   Congress passes a reform of the tax laws that encourages greater saving.
D)   Congress passes a reform of the tax laws that encourages greater investment.E) A) and D)
F) None of the above

Question 9

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.E) A) and C)
F) None of the above

Question 10

If Japan goes from a small budget deficit to a large budget deficit,it will reduce

Accepted Answer

A)   private saving and so shift the supply of loanable funds left.
B)   investment and so shift the demand for loanable funds left.
C)   public saving and so shift the supply of loanable funds left.
D)   None of the above is correct.E) B) and C)
F) B) and D)

Question 11

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 charge 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.E) C) and D)
F) None of the above

Question 12

The real interest rate is the

Accepted Answer

A)   interest rate corrected for inflation.
B)   interest rate as usually reported by banks.
C)   difference between the interest rate charged by banks on the loans they make and the interest rate paid by banks to their depositors.
D)   difference between the average dividend yield on stocks and the average interest rate on bonds.E) None of the above
F) B) and C)

Question 13

If a reform of the tax laws encourages greater saving,the result would be

Accepted Answer

A)   higher interest rates and greater investment.
B)   higher interest rates and less investment.
C)   lower interest rates and greater investment.
D)   lower interest rate and less investment.E) All of the above
F) A) and B)

Question 14

In national income accounting,we use which of the following pairs of terms interchangeably?

Accepted Answer

A)   "investment" and "private saving"
B)   "investment" and "purchases of stocks and bonds"
C)   "saving" and "national saving"
D)   "public saving" and "government tax revenue minus government spending"E) None of the above
F) C) and D)

Question 15

A mutual fund

Accepted Answer

A)   is a financial institution that stands between savers and borrowers.
B)   is a financial intermediary.
C)   allows people with small amounts of money to diversify their holdings.
D)   All of the above are correct.E) A) and D)
F) All of the above

Question 16

Scenario 18-3.Assume the following information for an imaginary,open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
-Refer to Scenario 18-3.For this economy,government purchases amount to

Accepted Answer

A)   $130.
B)   $180.
C)   $280.
D)   $330.E) B) and D)
F) C) and D)

Question 17

If in the past Congress had taken additional actions to make saving more rewarding,then today it is likely that the equilibrium interest rate

Accepted Answer

A)   and the equilibrium quantity of loanable funds both would be lower.
B)   and the equilibrium quantity of loanable funds both would be higher.
C)   would be higher and the equilibrium quantity of loanable funds would be lower.
D)   would be lower and the equilibrium quantity of loanable funds would be higher.E) A) and C)
F) A) and B)

Question 18

The single most important piece of information about a stock is its

Accepted Answer

A)   term.
B)   dividend.
C)   daily volume.
D)   price.E) A) and B)
F) A) and C)

Question 19

XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?

Accepted Answer

A)   4%
B)   3%
C)   1%
D)   None of the above is correct.E) A) and B)
F) B) and D)

Question 20

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Accepted Answer

A) True 
 B)False

Exam 18: Saving,investment,and the Financial System

If a reform of the tax laws encourages greater saving,the result would be

Correct Answer
verified

If in the past Congress had taken additional actions to make saving more rewarding,then today it is likely that the equilibrium interest rate

Correct Answer
verified

XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?

Correct Answer
verified

Scenario 18-3.Assume the following information for an imaginary,open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 18-3.For this economy,government purchases amount to

Correct Answer
verified

Correct Answer
verified

If Japan goes from a small budget deficit to a large budget deficit,it will reduce

Correct Answer
verified

The purchase of a new house is the one form of

Correct Answer
verified

The real interest rate is the

Correct Answer
verified

A mutual fund

Correct Answer
verified

Which of the following equations will always represent GDP in an open economy?

Correct Answer
verified

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

Correct Answer
verified

In national income accounting,we use which of the following pairs of terms interchangeably?

Correct Answer
verified

Scenario 18-3.Assume the following information for an imaginary,open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 18-3.This economy's government is running a

Correct Answer
verified

If Congress increased the tax rate on interest income,investment

Correct Answer
verified

Two of the economy's most important financial intermediaries are

Correct Answer
verified

The single most important piece of information about a stock is its

Correct Answer
verified

According to the loanable funds model,which of the following events would result in higher interest rates and greater saving?

Correct Answer
verified

Which of the following would likely make the interest rate on a bond higher than otherwise?

Correct Answer
verified

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

Correct Answer
verified

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Correct Answer
verified

Exam 18: Saving,investment,and the Financial System

If a reform of the tax laws encourages greater saving,the result would be

Correct AnswerverifiedShow Answer

If in the past Congress had taken additional actions to make saving more rewarding,then today it is likely that the equilibrium interest rate

Correct AnswerverifiedShow Answer

XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?

Correct AnswerverifiedShow Answer

Scenario 18-3.Assume the following information for an imaginary,open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 18-3.For this economy,government purchases amount to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If Japan goes from a small budget deficit to a large budget deficit,it will reduce

Correct AnswerverifiedShow Answer

The purchase of a new house is the one form of

Correct AnswerverifiedShow Answer

The real interest rate is the

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

Which of the following equations will always represent GDP in an open economy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In national income accounting,we use which of the following pairs of terms interchangeably?

Correct AnswerverifiedShow Answer

Scenario 18-3.Assume the following information for an imaginary,open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 18-3.This economy's government is running a

Correct AnswerverifiedShow Answer

If Congress increased the tax rate on interest income,investment

Correct AnswerverifiedShow Answer

Two of the economy's most important financial intermediaries are

Correct AnswerverifiedShow Answer

The single most important piece of information about a stock is its

Correct AnswerverifiedShow Answer

According to the loanable funds model,which of the following events would result in higher interest rates and greater saving?

Correct AnswerverifiedShow Answer

Which of the following would likely make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Correct AnswerverifiedShow Answer

Correct Answer
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