Question 1

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)   C
B)   I
C)   G
D)   None of the above are correct.E) A) and B)
F) C) and D)

Question 2

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 3

and are the two most important financial intermediaries.

Accepted Answer

Banks, Mut...

Question 4

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)   3
B)   8
C)   15
D)   26E) None of the above
F) All of the above

Question 5

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 B)
F) All of the above

Question 6

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Accepted Answer

A)   9.0 percent
B)   5 percent
C)   3.5 percent
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 7

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

Accepted Answer

A)   The supply of and demand for loanable funds would shift right.
B)   The supply of and demand for loanable funds would shift left.
C)   The supply of loanable funds would shift right and the demand for loanable funds would shift left.
D)   None of the above is correct.E) B) and C)
F) None of the above

Question 8

Northwest Wholesale Foods sells common stock. The company is using

Accepted Answer

A)   equity financing and the return shareholders earn is fixed.
B)   equity financing and the return shareholders earn depends on how profitable the company is.
C)   debt financing and the return shareholders earn is fixed.
D)   debt financing and the return shareholders earn depends on how profitable the company is.E) None of the above
F) All of the above

Question 9

Which of the following is correct?

Accepted Answer

A)   Lenders sell bonds and borrowers buy them.
B)   Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.
C)   The term junk bonds refers to bonds that have been resold many times.
D)   None of the above is correct.E) None of the above
F) All of the above

Question 10

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Accepted Answer

A)   The demand for loanable funds shifted rightward.
B)   The demand for loanable funds shifted leftward.
C)   The supply of loanable funds shifted rightward.
D)   The supply of loanable funds shifted leftward.E) B) and D)
F) B) and C)

Question 11

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Accepted Answer

A)   $1.5 trillion and $2.5 trillion, respectively
B)   $2.5 trillion and $1.5 trillion, respectively
C)   $2.5 trillion and $2.5 trillion, respectively
D)   $1.5 trillion and $1.5 trillion, respectivelyE) A) and C)
F) B) and C)

Question 12

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

Question 13

Which of the following is correct?

Accepted Answer

A)   Some bonds have terms as short as a few months.
B)   Because they are so risky, junk bonds pay a low rate of interest.
C)   Corporations buy bonds to raise funds.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 14

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Accepted Answer

A)   systems.
B)   markets.
C)   institutions.
D)   intermediaries.E) A) and B)
F) A) and C)

Question 15

Which of the following statements about the term of a bond is correct?

Accepted Answer

A)   Term refers to the various characteristics of a bond, including its interest rate and tax treatment.
B)   The term of a bond is determined entirely by its credit risk.
C)   The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond.
D)   Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) A) and C)
F) A) and D)

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Which of the following bonds has the highest interest rate?

Accepted Answer

A)   a high credit risk and a short term.
B)   a low credit risk and a short term.
C)   a long term and a high credit risk.
D)   a long term and a low credit risk.E) None of the above
F) C) and D)

Question 18

If the demand for loanable funds shifts to the right, then initially there is a

Accepted Answer

A)   surplus so the interest rate will fall.
B)   surplus so the interest rate will rise.
C)   shortage so the interest rate will fall.
D)   shortage so the interest rate will rise.E) A) and B)
F) C) and D)

Question 19

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Accepted Answer

A)   demand for and the supply of loanable funds to the right.
B)   demand for and the supply of loanable funds to the left.
C)   supply of loanable funds to the right and the demand for loanable funds to the left.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 20

An increase in the government's budget deficit 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) None of the above
F) B) and C)

Exam 8: Saving, Investment, and the Financial System

Which of the following bonds has the highest interest rate?

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Which of the following statements about the term of a bond is correct?

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If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

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Northwest Wholesale Foods sells common stock. The company is using

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

Historically, the typical price-earnings ratio for stocks is about

Correct AnswerverifiedShow Answer

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

An increase in the government's budget deficit means

Correct AnswerverifiedShow Answer

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

Correct AnswerverifiedShow Answer

Which of the following is correct?

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

and are the two most important financial intermediaries.

Correct AnswerverifiedBanks, Mut...View AnswerShow Answer

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Correct AnswerverifiedShow Answer

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the right, then initially there is a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct AnswerverifiedShow Answer

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Banks, Mut...
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