Question 1

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy...

Question 2

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

Question 3

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

A)   the government buys goods from another country
B)   someone buys stock in an American company
C)   a firm increases its capital stock
D)   All of the above are correct.E) All of the above
F) None of the above

Question 5

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) B) and C)
F) All of the above

Question 6

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) A) and C)

Question 7

The slope of the demand for loanable funds curve represents the

Accepted Answer

A)   positive relation between the real interest rate and investment.
B)   negative relation between the real interest rate and investment.
C)   positive relation between the real interest rate and saving.
D)   negative relation between the real interest rate and saving.E) B) and C)
F) All of the above

Question 8

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Accepted Answer

Investment spending ...

Question 9

If Congress instituted an investment tax credit

Accepted Answer

A)   it would make buying bonds more desirable, so the demand for loanable funds would shift.
B)   it would make buying capital goods more desirable, so the demand for loanable funds would shift.
C)   it would make buying bonds more desirable, so the supply of loanable funds would shift.
D)   it would make buying capital goods more desirable, so the supply of loanable funds would shift.E) A) and B)
F) A) and C)

Question 10

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) All of the above
F) C) and D)

Question 11

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) A) and B)
F) All of the above

Question 12

Banks

Accepted Answer

A)   play a role in creating an asset that people can use as a medium of exchange.
B)   are financial intermediaries, but mutual funds are not financial intermediaries.
C)   are financial markets, as are bond markets.
D)   All of the above are correct.E) None of the above
F) B) and D)

Question 13

A municipal bond is

Accepted Answer

A)   issued by the federal government.
B)   issued by state and local governments.
C)   issued by corporations.
D)   issued by households.E) B) and C)
F) All of the above

Question 14

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Accepted Answer

A)   the market for loanable funds is in equilibrium.
B)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise.
C)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.
D)   the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.E) None of the above
F) B) and C)

Question 15

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Accepted Answer

A)   $3 trillion
B)   $9 trillion
C)   $11 trillion
D)   $17 trillionE) A) and D)
F) None of the above

Question 16

An increase in the government's budget surplus means

Accepted Answer

A)   public saving is greater than $0 and increasing.
B)   public saving is greater than $0 and decreasing.
C)   public saving is less than $0 and increasing.
D)   public saving is less than $0 and decreasing.E) A) and C)
F) A) and B)

Question 17

Which of the following statements is correct?

Accepted Answer

A)   A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories.
B)   On average, indexed funds outperform managed funds.
C)   Unlike corporate bonds and stocks, checking accounts are a store of value.
D)   Financial intermediaries are institutions through which savers can directly provide funds to borrowers.E) B) and C)
F) A) and D)

Question 18

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

Accepted Answer

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

Question 19

Accepted Answer

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest. ) undefined
 ) undefined

Question 20

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

Which of the following statements is correct?

Correct Answer
verified

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

Correct Answer
verified

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Correct Answer
verified
Investment spending ...
View Answer

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Correct Answer
verified

We associate the term debt finance with

Correct Answer
verified

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct Answer
verified

Public saving is equal to national saving minus private saving.

Correct Answer
verified

If Congress instituted an investment tax credit

Correct Answer
verified

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Correct Answer
verified

Correct Answer
verified

An increase in the government's budget surplus means

Correct Answer
verified

A decrease in taxes on interest income would increase the interest rate.

Correct Answer
verified

The slope of the demand for loanable funds curve represents the

Correct Answer
verified

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

Correct Answer
verified

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 Answer
verified

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct Answer
verified
As shown in the graph below, the economy...
View Answer

A municipal bond is

Correct Answer
verified

Which of the following would be included as investment in the GDP accounts?

Correct Answer
verified

Banks

Correct Answer
verified

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?

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Correct AnswerverifiedInvestment spending ...View AnswerShow Answer

Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and government purchases of $4 trillion. What is GDP?

Correct AnswerverifiedShow Answer

We associate the term debt finance with

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

Public saving is equal to national saving minus private saving.

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit

Correct AnswerverifiedShow Answer

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the government's budget surplus means

Correct AnswerverifiedShow Answer

A decrease in taxes on interest income would increase the interest rate.

Correct AnswerverifiedShow Answer

The slope of the demand for loanable funds curve represents the

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below, the economy...View AnswerShow Answer

A municipal bond is

Correct AnswerverifiedShow Answer

Which of the following would be included as investment in the GDP accounts?

Correct AnswerverifiedShow Answer

Banks

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

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Investment spending ...
View Answer

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As shown in the graph below, the economy...
View Answer

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