Question 1

You have some estimates of national accounts numbers for a closed economy for the coming year.Under one set of expectations,government purchases will be $30 billion,transfer payments will be $10 billion,and taxes will be $45 billion.Under another set of expectations,GDP will be $200 billion,taxes will be $50 billion,transfer payments will be $20 billion,consumption will be $120 million,and investment will be $40 billion.Based on these numbers in the first case there should be a

Accepted Answer

A)   $15 billion surplus,and in the second case a $10 billion surplus.
B)   $15 billion surplus,and in the second case a $10 billion deficit.
C)   $5 billion surplus,and in the second case a $10 billion surplus.
D)   $5 billion surplus,and in the second case a $10 billion deficit.E) C) and D)
F) A) and B)

Question 2

Which of the following equations represents GDP for an open economy?

Accepted Answer

A)   Y = C + I + G + NX
B)   NX = I - G
C)   I = Y - C + G + NX
D)   Y = C + I + GE) A) and D)
F) A) and C)

Question 3

If there is surplus of loanable funds,then

Accepted Answer

A)   the supply for loanable funds shifts right and the demand shifts left.
B)   the supply for loanable funds shifts left and the demand shifts right.
C)   neither curve shifts,but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)   neither curve shifts,but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.E) A) and D)
F) A) and C)

Question 4

Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?

Accepted Answer

A)   $2.
B)   $3.
C)   $5
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 5

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 6

Other things the same,which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)   a bond issued by a state with a very good credit rating
B)   a bond issued by the U.S.government
C)   a bond issued by a fairly new company doing genetic research
D)   a bond issued by NabiscoE) None of the above
F) A) and B)

Question 7

Which of the following statements is correct?

Accepted Answer

A)   A general,persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)   A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)   A general,persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)   Expectations about the business cycle have no impact on stock prices.E) B) and C)
F) A) and B)

Question 8

PacknCamp Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio of PacknCamp is

Accepted Answer

A)   25,which is high compared to historical standards of the market.
B)   25,which is low compared to historical standards of the market.
C)   12.5,which is low compared to historical standards of the market.
D)   12.5,which is high compared to historical standards of the market.E) A) and B)
F) B) and C)

Question 9

The source of the supply of loanable funds

Accepted Answer

A)   is saving and the source of demand for loanable funds is investment.
B)   is investment and the source of demand for loanable funds is saving.
C)   and the demand for loanable funds is saving.
D)   and the demand for loanable funds is investment.E) A) and D)
F) All of the above

Question 10

Suppose a country has only a sales tax.Now suppose it replaces the sales tax with an income tax that includes a tax on interest income.This would make equilibrium

Accepted Answer

A)   interest rates and the equilibrium quantity of loanable funds rise.
B)   interest rates rise and the equilibrium quantity of loanable funds fall.
C)   interest rates fall and the equilibrium quantity of loanable funds rise.
D)   interest rates and the equilibrium quantity of loanable funds fall.E) B) and C)
F) B) and D)

Question 11

The supply of loanable funds slopes

Accepted Answer

A)   upward because an increase in the interest rate induces people to save more.
B)   downward because an increase in the interest rate induces people to save less.
C)   downward because an increase in the interest rate induces people to invest less.
D)   upward because an increase in the interest rate induces people to invest more.E) A) and D)
F) A) and C)

Question 12

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

Accepted Answer

A)   the demand for this company's stock to decrease,so the price would rise.
B)   the demand for this company's stock to decrease,so the price would fall.
C)   the supply of this company's stock to decrease,so the price would fall.
D)   the supply of this company's stock to decrease,so the price would rise.E) All of the above
F) A) and B)

Question 13

Stocks and bonds

Accepted Answer

A)   and checking accounts are all stores of value and commonly function as mediums of exchange.
B)   and checking accounts are all stores of value,but only stocks and bonds commonly function as mediums of exchange.
C)   and checking accounts are all stores of value,but only checking accounts commonly function as mediums of exchange.
D)   and checking accounts all commonly function as mediums of exchange,but only stocks and bonds are a store of value.E) A) and D)
F) None of the above

Question 14

When a large,well-known corporation wishes to borrow directly from the public,it can

Accepted Answer

A)   sell bonds.
B)   sell shares of stock.
C)   go to a bank for a loan.
D)   All of the above are correct.E) None of the above
F) A) and C)

Question 15

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

Question 16

Table 26-2
 
-Refer to Table 26-2.Which company had the lowest earnings per share?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H.J.Heinz and Co.
D)   Kellog Co.E) B) and C)
F) A) and C)

Question 17

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 18

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Accepted Answer

A)   Because they have the same term to maturity the interest rates should be the same.
B)   Because of the differences in tax treatment and credit risk,the state bond should have the higher interest rate.
C)   Because of the differences in tax treatment and credit risk,the corporate bond should have the higher interest rate.
D)   It is not possible to say if one bond has a higher interest rate than the other.E) B) and C)
F) None of the above

Question 19

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion,transfers of $40 billion,and government purchases of goods and services of $80 billion.You also notice that last year it had private saving of $50 billion and investment of $70 billion.In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)   this year and last year
B)   this year but not last year
C)   last year but not this year
D)   neither this year nor last yearE) C) and D)
F) All of the above

Question 20

In recent years the U.S.national debt has been about

Accepted Answer

A)   10-20 percent of GDP.
B)   30-40 percent of GDP.
C)   50-60 percent of GDP.
D)   70-80 percent of GDP.E) B) and D)
F) None of the above

Exam 26: Saving, investment, and the Financial System

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Correct Answer
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Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

Correct Answer
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Which of the following equations represents GDP for an open economy?

Correct Answer
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Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Correct Answer
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If there is surplus of loanable funds,then

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

Correct Answer
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In recent years the U.S.national debt has been about

Correct Answer
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Which of the following statements is correct?

Correct Answer
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When a large,well-known corporation wishes to borrow directly from the public,it can

Correct Answer
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Table 26-2 -Refer to Table 26-2.Which company had the lowest earnings per share?

Correct Answer
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Stocks and bonds

Correct Answer
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Suppose a country has only a sales tax.Now suppose it replaces the sales tax with an income tax that includes a tax on interest income.This would make equilibrium

Correct Answer
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Correct Answer
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Correct Answer
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The source of the supply of loanable funds

Correct Answer
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When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Correct Answer
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Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?

Correct Answer
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The supply of loanable funds slopes

Correct Answer
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PacknCamp Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio of PacknCamp is

Correct Answer
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Other things the same,which bond would you expect to pay the lowest interest rate?

Correct Answer
verified

Exam 26: Saving, investment, and the Financial System

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Correct AnswerverifiedShow Answer

Suppose that the tires of a certain tire manufacturer are discovered to be defective.Other things the same,this news would cause

Correct AnswerverifiedShow Answer

Which of the following equations represents GDP for an open economy?

Correct AnswerverifiedShow Answer

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Correct AnswerverifiedShow Answer

If there is surplus of loanable funds,then

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

In recent years the U.S.national debt has been about

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

When a large,well-known corporation wishes to borrow directly from the public,it can

Correct AnswerverifiedShow Answer

Table 26-2 -Refer to Table 26-2.Which company had the lowest earnings per share?

Correct AnswerverifiedShow Answer

Stocks and bonds

Correct AnswerverifiedShow Answer

Suppose a country has only a sales tax.Now suppose it replaces the sales tax with an income tax that includes a tax on interest income.This would make equilibrium

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The source of the supply of loanable funds

Correct AnswerverifiedShow Answer

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Correct AnswerverifiedShow Answer

Buskin's Corporation has issued 2 million shares of stock.Its earnings were $10 million,of which it retained $6 million.What was the dividend per share?

Correct AnswerverifiedShow Answer

The supply of loanable funds slopes

Correct AnswerverifiedShow Answer

PacknCamp Corporation has a stock price of $50,has issued 2,000,000 shares of stock,has retained earnings of $4 million dollars,and a dividend yield of 4 percent.The price-earnings ratio of PacknCamp is

Correct AnswerverifiedShow Answer

Other things the same,which bond would you expect to pay the lowest interest rate?

Correct AnswerverifiedShow Answer

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