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

Question 2

If the demand for loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rise.
B)  and quantity of loanable funds fall.
C)  rises and the quantity of loanable funds falls.
D)  falls and the quantity of loanable funds rises.E) B) and C)
F) A) and D)

Question 3

Scenario 13-2. Assume the following information for an imaginary, closed economy.
GDP = $200,000; consumption = $120,000;
government purchases = $35,000; and taxes = $25,000.
-Refer to Scenario 13-2. For this economy, national saving is equal to

Accepted Answer

A)  $30,000.
B)  $35,000.
C)  $45,000.
D)  $60,000.E) A) and D)
F) C) and D)

Question 4

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

Question 5

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 6

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

Accepted Answer

A)  and the equilibrium quantity of loanable funds both would be lower.
B)  and the equilibrium quantity of loanable funds both would be higher.
C)  would be higher and the equilibrium quantity of loanable funds would be lower.
D)  would be lower and the equilibrium quantity of loanable funds would be higher.E) B) and D)
F) A) and D)

Question 7

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it is long term
B)  the interest it pays is taxed and it is short term
C)  the interest it pays is tax exempt and it is long term
D)  the interest it pays is tax exempt and it is short termE) A) and B)
F) All of the above

Question 8

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

Accepted Answer

A)  consumption
B)  taxes
C)  government purchases
D)  net exportsE) All of the above
F) None of the above

Question 9

Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

Accepted Answer

A)  will make investment rise.
B)  will make the rate of interest rise.
C)  will make public saving rise.
D)  All of the above are correct.E) None of the above
F) All of the above

Question 10

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A)  The government runs a larger deficit.
B)  The government institutes an investment tax credit.
C)  The government replaces the income tax with a consumption tax.
D)  None of the above is correct.E) A) and D)
F) None of the above

Question 11

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

Question 12

Which of the following is correct?

Accepted Answer

A)  Joan takes some of her income and buys mutual fund shares. Joan's purchase will be included in the investment category of GDP.
B)  If a share of stock in Virtual Pizza Corporation sells for $77, the earnings per share are $5, and the dividend per share is $2, then the P/E ratio is 11.
C)  In order to use equity finance, a firm must sell about equal values of stocks and bonds.
D)  None of the above is correct.E) B) and C)
F) A) and D)

Question 13

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

Accepted Answer

A)  capital investment.
B)  investment in human capital.
C)  business consumption expenditures.
D)  personal saving.E) A) and C)
F) A) and D)

Question 14

Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

Accepted Answer

A)  lower than 6 percent..
B)  6 percent.
C)  between 6 percent and 8 percent.
D)  higher than 8 percent.E) A) and B)
F) None of the above

Question 15

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 16

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 17

If Japan goes from a small budget deficit to a large budget deficit, it will reduce

Accepted Answer

A)  private saving and so shift the supply of loanable funds left.
B)  investment and so shift the demand for loanable funds left.
C)  public saving and so shift the supply of loanable funds left.
D)  None of the above is correct.E) A) and B)
F) All of the above

Question 18

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)  the supply of loanable funds does not change; a higher interest rate reduces private saving
B)  the supply of loanable funds does not change; a higher interest rate raises private saving
C)  at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving
D)  at any interest rate the supply of loanable funds is less; a higher interest rate raises private savingE) A) and B)
F) All of the above

Question 19

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.E) B) and C)
F) None of the above

Question 20

Which of the following is a certificate of indebtedness?

Accepted Answer

A)  stocks and bonds
B)  stocks but not bonds
C)  bonds but not stocks
D)  neither stocks nor bondsE) None of the above
F) All of the above

Exam 13: Saving, Investment, and the Financial System

If Japan goes from a small budget deficit to a large budget deficit, it will reduce

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For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

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If the demand for loanable funds shifts to the right, then the equilibrium interest rate

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Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

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

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Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget

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If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

Correct AnswerverifiedShow Answer

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

Correct AnswerverifiedShow Answer

Scenario 13-2. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. -Refer to Scenario 13-2. For this economy, national saving is equal to

Correct AnswerverifiedShow Answer

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

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 shares of stock.

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Which of the following is a certificate of indebtedness?

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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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Figure 13-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 13-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 4 percent, then the equilibrium real interest rate is

Correct AnswerverifiedShow Answer

Borrowers can (and sometimes do) default on their loans when

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Which of the following are effects of an increased budget deficit?

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Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

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Which of the following is correct?

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Which of the following events could explain an increase in interest rates together with an increase in investment?

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Which of the following would both make the interest rate on a bond higher than otherwise?

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