Question 1

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

Question 2

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)   the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)   Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C)   Bond A has a term of 20 years and Bond B has a term of 2 years.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 4

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 5

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A)   7 percent.
B)   -1 percent.
C)   3 percent.
D)   4 percent.E) A) and B)
F) A) and C)

Question 6

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

Accepted Answer

A)   .5 percent
B)   1.25 percent
C)   4.5 percent
D)   None of the above is correct.E) C) and D)
F) B) and D)

Question 7

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

Accepted Answer

A)   rise.
B)   fall.
C)   be unchanged.
D)   move in an uncertain direction.E) B) and D)
F) B) and C)

Question 8

We associate the term debt finance with

Accepted Answer

A)   the bond market, and we associate the term equity finance with the stock market.
B)   the stock market, and we associate the term equity finance with the bond market.
C)   financial intermediaries, and we associate the term equity finance with financial markets.
D)   financial markets, and we associate the term equity finance with financial intermediaries.E) A) and D)
F) C) and D)

Question 9

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future.
C)   Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations.
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 10

Managed funds

Accepted Answer

A)   typically have a higher rate of return and higher costs than index funds.
B)   typically have a higher rate of return and lower costs than index funds.
C)   typically have a lower rate of return and higher costs than index funds.
D)   typically have a lower rate of return and lower costs than index funds.E) B) and D)
F) B) and C)

Question 11

If a firm sells a total of 100 shares of stock, then

Accepted Answer

A)   each share represents 1 percent of the firm's indebtedness.
B)   each share represents ownership of 1 percent of the firm.
C)   the firm is engaging in term finance.
D)   All of the above are correct.E) All of the above
F) A) and B)

Question 12

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) A) and C)
F) A) and D)

Question 13

We would expect the interest rate on Bond A to be higher 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 20 years and Bond B has a term of 1 year.
D)   All of the above are correct.E) B) and D)
F) None of the above

Question 14

Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150.
-Refer to Scenario 26-3. For this economy, government purchases amount to

Accepted Answer

A)   $330.
B)   $280.
C)   $305.
D)   $310.E) None of the above
F) All of the above

Question 15

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i...

Question 16

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point B to Point A
C)   a movement from Point A to Point F
D)   a movement from Point B to Point CE) B) and C)
F) B) and D)

Question 17

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) A) and B)
F) A) and C)

Question 18

Which of the following would shift the demand for loanable funds to the right?

Accepted Answer

A)   income tax increases
B)   government expenditures increase
C)   the interest rate falls
D)   Congress and the president pass an investment tax creditE) B) and D)
F) None of the above

Question 19

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 loanable funds demanded.

Accepted Answer

A)   $1.8 trillion
B)   $1.6 trillion
C)   $1.4 trillion
D)   $0.8 trillionE) A) and B)
F) A) and C)

Question 20

When the government runs a budget deficit,

Accepted Answer

A)   interest rates are lower than they would be if the budget were balanced.
B)   national saving is higher than it would be if the budget were balanced.
C)   investment is lower than it would be if the budget were balanced.
D)   All of the above are correct.E) All of the above
F) B) and C)

Exam 18: Saving, Investment, and the Financial System

If the nominal interest rate is 2.5 percent and the inflation rate is 2 percent, what is the real interest rate?

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If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

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Which of the following is a financial intermediary?

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Managed funds

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Which of the following statements is correct?

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

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If a firm sells a total of 100 shares of stock, then

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

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If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would

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Which of the following would shift the demand for loanable funds to the right?

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When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Correct Answerverifieddeficit, i...View AnswerShow Answer

We associate the term debt finance with

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Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. For this economy, government purchases amount to

Correct AnswerverifiedShow Answer

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

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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 loanable funds demanded.

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Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

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

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

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.

Correct AnswerverifiedShow Answer

When the government runs a budget deficit,

Correct AnswerverifiedShow Answer

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When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

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deficit, i...
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