Question 1

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Accepted Answer

A)   These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver.
B)   These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower.
C)   These purchases are called consumption. If you raise the funds to purchase them from others you are a saver.
D)   These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.E) A) and C)
F) None of the above

Question 2

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Accepted Answer

A)   lower interest rates and investment in 2011 than in 2010.
B)   lower interest rates and greater investment in 2011 than in 2010.
C)   higher interest rates and greater investment in 2011 than in 2010.
D)   higher interest rates and lower investment in 2011 than in 2010.E) A) and B)
F) A) and C)

Question 3

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. This economy's government is running a

Accepted Answer

A)   budget surplus of $3,000.
B)   budget surplus of $12,000.
C)   budget deficit of $3,000.
D)   budget deficit of $12,000.E) B) and C)
F) C) and D)

Question 4

A bond that never matures is known as a

Accepted Answer

A)   perpetuity.
B)   an intermediary bond.
C)   an indexed bond.
D)   a junk bond.E) B) and C)
F) A) and B)

Question 5

As real interest rates fall, firms desire to

Accepted Answer

A)   buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
B)   buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
C)   buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
D)   buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.E) A) and D)
F) A) and C)

Question 6

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

Accepted Answer

A)   the level of public saving.
B)   the level of national saving.
C)   decisions made by people who have extra income they want to save and lend out.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 7

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium.
 
-Refer to Table 26-3. Determine the quantity of private saving.

Accepted Answer

A)   $0.2 trillion
B)   $1.6 trillion
C)   $1.8 trillion
D)   $2.6 trillionE) B) and D)
F) None of the above

Question 8

Crowding out occurs when

Accepted Answer

A)   investment declines because a budget deficit makes interest rates rise.
B)   investment declines because a budget deficit makes interest rates fall.
C)   investment increases because a budget surplus makes interest rates rise.
D)   investment increases because a budget surplus makes interest rates fall.E) A) and B)
F) B) and C)

Question 9

Which of the following is not a characteristic of a bond?

Accepted Answer

A)   its tax treatment
B)   its credit risk
C)   its term
D)   its dividend yieldE) None of the above
F) A) and D)

Question 10

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Accepted Answer

A)   provide free higher education to all Americans.
B)   have college students sell equity in themselves.
C)   reduce interest rates on student loans.
D)   increase the number of colleges and universities in the United States.E) None of the above
F) B) and C)

Question 11

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Accepted Answer

A)   8 percent.
B)   2 percent.
C)   3 percent.
D)   5 percent.E) A) and B)
F) A) and C)

Question 12

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Accepted Answer

A)   not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money.
B)   not influence the decision to build the factory because its stockholders are expecting a new factory.
C)   make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable.
D)   make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.E) None of the above
F) All of the above

Question 13

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)   Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
B)   Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
C)   Bond A has a term of 1 year and Bond B has a term of 5 years.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 14

Other things the same, an increase in the budget deficit

Accepted Answer

A)   shifts the demand for loanable funds right, so the interest rate rises.
B)   shifts the demand for loanable funds left, so the interest rate falls.
C)   shifts the supply of loanable funds right, so the interest rate falls.
D)   shifts the supply of loanable funds left, so the interest rate rises.E) None of the above
F) B) and C)

Question 15

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The demand for loana...

Question 16

The ratio of debt to GDP in the United States

Accepted Answer

A)   tends to rise during wars.
B)   rose during the decade that began in 2001.
C)   fell during the late 1990s.
D)   All of the above are correct.E) A) and C)
F) B) and C)

Question 17

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)   creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits.
B)   creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.
C)   part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.
D)   part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.E) A) and B)
F) A) and C)

Question 18

Which of the following is a financial intermediary?

Accepted Answer

A)   a mutual fund
B)   the stock market
C)   a U.S. government bond
D)   a wealthy individual who regularly buys and holds large quantities of government bondsE) B) and C)
F) All of the above

Question 19

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.E) B) and C)
F) A) and C)

Question 20

If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Accepted Answer

A)   desired saving and desired investment both fall
B)   desired saving and desired investment both rise
C)   desired saving falls and desired investment rises
D)   desired saving rises and desired investment fallsE) A) and B)
F) A) and C)

Exam 13: Saving, Investment, and the Financial System

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. -Refer to Table 26-3. Determine the quantity of private saving.

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The ratio of debt to GDP in the United States

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A bond that never matures is known as a

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Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. This economy's government is running a

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As real interest rates fall, firms desire to

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Which of the following is a financial intermediary?

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Crowding out occurs when

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If there is a shortage in the market for loanable funds, what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

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Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Correct AnswerverifiedThe demand for loana...View AnswerShow Answer

Which of the following is not a characteristic of a bond?

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Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding. Last year, Tasty Greens earned $4 million, of which it retained $2.4 million for future investments. The dividend yield on the stock is

Correct AnswerverifiedShow Answer

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Correct AnswerverifiedShow Answer

Suppose a country had a smaller increase in debt in 2011 than it had in 2010. Then other things the same, we would expect

Correct AnswerverifiedShow Answer

Other things the same, an increase in the budget deficit

Correct AnswerverifiedShow Answer

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

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

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Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by

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People who buy stock in a corporation such as General Electric become

Correct AnswerverifiedShow Answer

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Correct AnswerverifiedShow Answer

The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should

Correct AnswerverifiedShow Answer

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The demand for loana...
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