Question 1

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Accepted Answer

A)   saving and the interest rate
B)   saving but not the interest rate
C)   the interest rate but not saving
D)   neither saving nor the interest rateE) A) and B)
F) A) and C)

Question 2

Use the following table to answer the following questions.
Table 26-1
 
-Refer to Table 26-1. In dollar terms, which company paid the highest dividend per share?

Accepted Answer

A)   GenMills
B)   Microsoft
C)   Graco
D)   HersheyE) C) and D)
F) A) and D)

Question 3

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. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Accepted Answer

A)   11 percent.
B)   approximately 6 percent.
C)   between 6 percent and 8 percent.
D)   between 11 percent and 13 percent.E) None of the above
F) A) and D)

Question 4

For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

A)   $5 trillion and $3 trillion, respectively
B)   $5 trillion and $1 trillion, respectively
C)   $2 trillion and $3 trillion, respectively
D)   $2 trillion and $1 trillion, respectivelyE) A) and D)
F) B) and C)

Question 5

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)   less likely to expand. This illustrates why the supply of loanable funds slopes downward.
B)   more likely to expand. This illustrates why the supply of loanable funds slopes upward.
C)   less likely to expand. This illustrates why the demand for loanable funds slopes downward.
D)   more likely to expand. This illustrates why the demand for loanable funds slopes upward.E) B) and D)
F) B) and C)

Question 6

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

Accepted Answer

A)   The economy has no government.
B)   The economy's government is running a budget deficit.
C)   The economy's government is running a budget surplus.
D)   No restriction is necessary; investment and private saving are equal for all closed economies.E) A) and B)
F) A) and C)

Question 7

Other things the same, a government budget deficit

Accepted Answer

A)   reduces public saving, but not national saving.
B)   reduces national saving, but not public saving.
C)   reduces both public and national saving.
D)   reduces neither public saving nor national saving.E) C) and D)
F) All of the above

Question 8

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)   the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)   Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston.
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 D)
F) B) and C)

Question 9

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Accepted Answer

A)   the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high.
B)   the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low.
C)   the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high.
D)   the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low.E) A) and C)
F) A) and B)

Question 10

Which of the following statements is correct?

Accepted Answer

A)   As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate.
B)   The interest rate that is usually reported is the nominal interest rate.
C)   If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases.
D)   All of the above are correct.E) C) and D)
F) B) and D)

Question 11

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Accepted Answer

A)   S = I.
B)   S = 0.
C)   I = S + NX.
D)   S = I + NX.E) All of the above
F) C) and D)

Question 12

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Accepted Answer

A)   Consumption and private saving are equal.
B)   The economy's government is running neither a surplus nor a deficit.
C)   Private saving and public saving are both zero.
D)   No restriction is necessary; private saving and investment are equal for all closed economies.E) A) and D)
F) B) and C)

Question 13

In addition to

Accepted Answer

A)   performing financial intermediation, banks are important in that they help create a medium of exchange.
B)   serving as financial markets, mutual funds are important in that they help create a store of value.
C)   serving as stores of value, stocks and bonds also serve as media of exchange.
D)   All of the above are correct.E) B) and D)
F) B) and C)

Question 14

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) A) and B)
F) B) and D)

Question 15

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

Accepted Answer

A)   $15
B)   $30
C)   $45
D)   $60.E) None of the above
F) B) and D)

Question 16

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

Accepted Answer

A)   the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
B)   the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
C)   the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
D)   the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.E) All of the above
F) B) and C)

Question 17

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Accepted Answer

A reduction in transfer paymen...

Question 18

Borrowers can and sometimes do)  default on their loans when

Accepted Answer

A)   the dividend yield on their shares of stock reaches zero.
B)   they convert their bonds into perpetuities.
C)   they declare bankruptcy.
D)   they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.E) All of the above
F) A) and C)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Accepted Answer

A)   borrowing directly.
B)   borrowing indirectly.
C)   lending directly.
D)   lending indirectly.E) All of the above
F) A) and D)

Exam 13: Saving, Investment, and the Financial System

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then

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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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Other things the same, a government budget deficit

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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 shares of stock.

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In addition to

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If people expect future earnings of Galt Corporation to be high relative to current earnings, then

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For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

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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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For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

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Which of the following statements is correct?

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Which of the following restrictions implies that private saving and investment are equal for a closed economy?

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Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $3, and retained earnings of $1 a share. What was the price of a share of Mallard stock?

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If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

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As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

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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. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Correct AnswerverifiedShow Answer

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

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Kathleen is considering expanding her dress shop. If interest rates rise she is

Correct AnswerverifiedShow Answer

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Correct AnswerverifiedA reduction in transfer paymen...View AnswerShow Answer

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. In dollar terms, which company paid the highest dividend per share?

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Borrowers can and sometimes do) default on their loans when

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A reduction in transfer paymen...
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