Question 1

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 2

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, investment amounts to

Accepted Answer

A)   $38,000.
B)   $18,000.
C)   $12,000.
D)   $15,000.E) C) and D)
F) None of the above

Question 3

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

A)   $3 trillion and $1 trillion, respectively
B)   $3 trillion and $2 trillion, respectively
C)   $2 trillion and $3 trillion, respectively
D)   $2 trillion and $2 trillion, respectivelyE) All of the above
F) B) and C)

Question 4

If consumers reduced their spending, what would happen to the interest rate and investment?

Accepted Answer

The interest rate wo...

Question 5

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Accepted Answer

A)   "U.S. government bonds generally pay a higher rate of interest than corporate bonds."
B)   "The interest received on corporate bonds is taxable."
C)   "U.S. government bonds have the lowest default risk."
D)   "If you purchase a municipal bond, you can sell it before it matures."E) B) and D)
F) B) and C)

Question 6

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)   In response to tax reform, firms are encouraged to invest more than they previously invested.
B)   In response to tax reform, households are encouraged to save more than they previously saved.
C)   Government goes from running a balanced budget to running a budget deficit.
D)   Any of the above events would shift the supply curve from S1 to S2.E) None of the above
F) B) and C)

Question 7

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Question 8

Crowding out occurs when investment declines because

Accepted Answer

A)   a budget deficit makes interest rates rise.
B)   a budget deficit makes interest rates fall.
C)   a budget surplus makes interest rates rise.
D)   a budget surplus makes interest rates fall.E) B) and C)
F) A) and D)

Question 9

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 $30 billion deficit.
C)   $5 billion surplus, and in the second case a $10 billion deficit.
D)   $5 billion surplus, and in the second case a $30 billion deficit.E) B) and D)
F) A) and C)

Question 10

Which of the following equations represents GDP for a closed economy?

Accepted Answer

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

Question 11

When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Accepted Answer

demand, le...

Question 12

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Accepted Answer

A) True 
 B)False

Question 13

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 households' decision to save more?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point F to Point A
C)   a movement from Point C to Point F
D)   a movement from Point B to Point CE) None of the above
F) All of the above

Question 14

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

A)   bank deposits and purchases of bonds
B)   bank deposits but not purchases of bonds
C)   purchases of bonds but not bank deposits
D)   neither purchases of bonds nor bank depositsE) A) and B)
F) All of the above

Question 15

A low P/E for a stock indicates that

Accepted Answer

A)   people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition.
B)   its dividends have been low so that no one is willing to pay very much for it.
C)   the corporation is possibly overvalued.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 16

Which of the following is not correct?

Accepted Answer

A)   By saving a larger portion of its GDP, a country can raise its output per worker.
B)   Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date.
C)   Financial intermediaries are the only type of financial institution.
D)   The financial system helps match people's saving with other people's borrowing.E) B) and C)
F) A) and B)

Question 17

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A)   The government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
B)   Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital.
C)   Consumers decide to decrease consumption and work more.
D)   All of the above could explain why the interest rate would be unchanged.E) C) and D)
F) All of the above

Question 18

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

Accepted Answer

A)   a bond issued by the U.S. government
B)   a bond issued by Microsoft Corporation
C)   a bond issued by the state of Montana
D)   a bond issued by a new chain of Brazilian-style restaurantsE) A) and C)
F) A) and B)

Question 19

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) B) and C)
F) C) and D)

Question 20

What variable adjusts to balance demand and supply in the market for loanable funds?

Accepted Answer

The real i...

Exam 13: Saving, Investment, and the Financial System

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 households' decision to save more?

Correct Answer
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Correct Answer
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Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Correct Answer
verified

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Correct Answer
verified

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

Correct Answer
verified

Crowding out occurs when investment declines because

Correct Answer
verified

Which of the following counts as part of the supply of loanable funds?

Correct Answer
verified

Which of the following is not correct?

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

Correct Answer
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Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

Correct Answer
verified

A low P/E for a stock indicates that

Correct Answer
verified

When tax code changes reduce investment incentives, the ___ for loanable funds curve shifts to the _. This results in an) _ in the interest rate and an) ___ in investment.

Correct Answer
verified
demand, le...
View Answer

A government may use deficit financing to smooth tax rates over time.

Correct Answer
verified

What variable adjusts to balance demand and supply in the market for loanable funds?

Correct Answer
verified
The real i...
View Answer

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Correct Answer
verified

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Correct Answer
verified

What are the basic differences between bonds and stocks?

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

If consumers reduced their spending, what would happen to the interest rate and investment?

Correct Answer
verified
The interest rate wo...
View Answer

Which of the following equations represents GDP for a closed economy?

Correct Answer
verified

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

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 households' decision to save more?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Correct AnswerverifiedShow Answer

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Crowding out occurs when investment declines because

Correct AnswerverifiedShow Answer

Which of the following counts as part of the supply of loanable funds?

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

Correct AnswerverifiedShow Answer

A low P/E for a stock indicates that

Correct AnswerverifiedShow Answer

When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Correct Answerverifieddemand, le...View AnswerShow Answer

A government may use deficit financing to smooth tax rates over time.

Correct AnswerverifiedShow Answer

What variable adjusts to balance demand and supply in the market for loanable funds?

Correct AnswerverifiedThe real i...View AnswerShow Answer

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Correct AnswerverifiedShow Answer

For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Correct AnswerverifiedShow Answer

What are the basic differences between bonds and stocks?

Correct AnswerverifiedA bond is a certificate of indebtedness ...View AnswerShow Answer

If consumers reduced their spending, what would happen to the interest rate and investment?

Correct AnswerverifiedThe interest rate wo...View AnswerShow Answer

Which of the following equations represents GDP for a closed economy?

Correct AnswerverifiedShow Answer

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
verified

When tax code changes reduce investment incentives, the ___ for loanable funds curve shifts to the _. This results in an) _ in the interest rate and an) ___ in investment.

Correct Answer
verified
demand, le...
View Answer

Correct Answer
verified

Correct Answer
verified
The real i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

Correct Answer
verified
The interest rate wo...
View Answer

Correct Answer
verified

Correct Answer
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