Question 1

What is the main function of the financial system?

Accepted Answer

Matching s...

Question 2

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)   undervalued or people are relatively optimistic about the corporation's prospects.
B)   overvalued or people are relatively optimistic about the corporation's prospects.
C)   overvalued or people are relatively pessimistic about the corporation's prospects.
D)   undervalued or people are relatively pessimistic about the corporation's prospects.E) C) and D)
F) A) and C)

Question 3

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

Accepted Answer

A)   The government went from surplus to deficit.
B)   The government instituted an investment tax credit.
C)   The government reduced the tax rate on savings.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 4

A high demand for a company's stock is an indication that

Accepted Answer

A)   the company is in need of funds.
B)   the company has recently sold a large quantity of bonds.
C)   people are optimistic about the company's future.
D)   people are pessimistic about the company's future.E) B) and D)
F) None of the above

Question 5

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Accepted Answer

A) True 
 B)False

Question 6

The country of Meditor uses the merit as its currency.Recent national income statistics showed that it had GDP of $700 million merits,no government transfer payments,taxes of $210 million merits,a budget surplus of $60 billion merits,and investment of $100 billion merits.What were its consumption and government expenditures on goods and services?

Accepted Answer

A)   450 million merits and $150 million merits
B)   410 million merits and $150 million merits
C)   330 million merits and $270 million merits
D)   290 million merits and $270 million meritsE) B) and C)
F) A) and B)

Question 7

National saving

Accepted Answer

A)   is the total income in the economy that remains after paying for consumption.
B)   is the total income in the economy that remains after paying for consumption and government purchases.
C)   is always greater than investment for a closed economy.
D)   is equal to private saving minus public saving.E) A) and D)
F) B) and D)

Question 8

The sale of stocks

Accepted Answer

A)   and bonds to raise money is called debt finance.
B)   and bonds to raise money is called equity finance.
C)   to raise money is called debt finance,while the sale of bonds to raise funds is called equity finance.
D)   to raise money is called equity finance,while the sale of bonds to raise funds is called debt finance.E) A) and D)
F) B) and D)

Question 9

Suppose a country had a smaller increase in debt in 2011 than it had in 2010.Then other things the same,we would expect

Accepted Answer

A)   lower interest rates and investment in 2011 than in 2010.
B)   lower interest rates and greater investment in 2011 than in 2010.
C)   higher interest rates and greater investment in 2011 than in 2010.
D)   higher interest rates and lower investment in 2011 than in 2010.E) B) and D)
F) B) and C)

Question 10

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.a U.S.government bond or a Venezuelan government bond
b.a U.S.government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c.a 6-month Treasury bill or a 20-year Treasury bond
d.a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a.The Venezuelan government bond would l...

Question 11

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Accepted Answer

A)   Because they have the same term to maturity the interest rates should be the same.
B)   Because of the differences in tax treatment and credit risk,the state bond should have the higher interest rate.
C)   Because of the differences in tax treatment and credit risk,the corporate bond should have the higher interest rate.
D)   It is not possible to say if one bond has a higher interest rate than the other.E) None of the above
F) A) and B)

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Figure 13-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 13-1.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) A) and B)
F) A) and C)

Question 14

If the government's expenditures exceeded its receipts,it would likely

Accepted Answer

A)   lend money to a bank or other financial intermediary.
B)   borrow money from a bank or other financial intermediary.
C)   buy bonds directly from the public.
D)   sell bonds directly to the public.E) A) and D)
F) None of the above

Question 15

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

Accepted Answer

The real i...

Question 16

Suppose a country has a consumption tax that is similar to a state sales tax.If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings,what would happen?

Accepted Answer

A)   There would be no change in the interest rate or saving.
B)   The interest rate would decrease and saving would increase.
C)   The interest rate would increase and saving would decrease.
D)   None of the above is correct.E) All of the above
F) B) and C)

Question 17

Suppose a small closed economy has GDP of $5 billion,consumption of $3 billion,and government expenditures of $1 billion.Then investment and national saving are both $1 billion.

Accepted Answer

A) True 
 B)False

Question 18

At the broadest level,the financial system moves the economy's scarce resources from

Accepted Answer

A)   the rich to the poor.
B)   financial institutions to business firms and government.
C)   households to financial institutions.
D)   savers to borrowers.E) B) and C)
F) A) and D)

Question 19

A budget deficit

Accepted Answer

A)   changes the supply of loanable funds.
B)   changes the demand for loanable funds.
C)   changes both the supply of and demand for loanable funds.
D)   does not influence the supply of or the demand for loanable funds.E) A) and D)
F) All of the above

Question 20

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

Exam 26: Saving,investment,and the Financial System

A budget deficit

Correct Answer
verified

At the broadest level,the financial system moves the economy's scarce resources from

Correct Answer
verified

Suppose a small closed economy has GDP of $5 billion,consumption of $3 billion,and government expenditures of $1 billion.Then investment and national saving are both $1 billion.

Correct Answer
verified

If the government's expenditures exceeded its receipts,it would likely

Correct Answer
verified

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Correct Answer
verified

National saving

Correct Answer
verified

Figure 13-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 13-1.Which of the following events would shift the supply curve from S1 to S2?

Correct Answer
verified

A low price-earnings ratio indicates that either the stock is

Correct Answer
verified

The sale of stocks

Correct Answer
verified

Suppose a country had a smaller increase in debt in 2011 than it had in 2010.Then other things the same,we would expect

Correct Answer
verified

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

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

Correct Answer
verified

Correct Answer
verified

A high demand for a company's stock is an indication that

Correct Answer
verified

Suppose a country has a consumption tax that is similar to a state sales tax.If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings,what would happen?

Correct Answer
verified

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Correct Answer
verified

Correct Answer
verified
a.The Venezuelan government bond would l...
View Answer

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

Correct Answer
verified

What is the main function of the financial system?

Correct Answer
verified
Matching s...
View Answer

Exam 26: Saving,investment,and the Financial System

A budget deficit

Correct AnswerverifiedShow Answer

At the broadest level,the financial system moves the economy's scarce resources from

Correct AnswerverifiedShow Answer

Suppose a small closed economy has GDP of $5 billion,consumption of $3 billion,and government expenditures of $1 billion.Then investment and national saving are both $1 billion.

Correct AnswerverifiedShow Answer

If the government's expenditures exceeded its receipts,it would likely

Correct AnswerverifiedShow Answer

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Correct AnswerverifiedShow Answer

National saving

Correct AnswerverifiedShow Answer

Figure 13-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 13-1.Which of the following events would shift the supply curve from S1 to S2?

Correct AnswerverifiedShow Answer

A low price-earnings ratio indicates that either the stock is

Correct AnswerverifiedShow Answer

The sale of stocks

Correct AnswerverifiedShow Answer

Suppose a country had a smaller increase in debt in 2011 than it had in 2010.Then other things the same,we would expect

Correct AnswerverifiedShow 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

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A high demand for a company's stock is an indication that

Correct AnswerverifiedShow Answer

Suppose a country has a consumption tax that is similar to a state sales tax.If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings,what would happen?

Correct AnswerverifiedShow Answer

Two bonds have the same term to maturity.The first was issued by a state government and the probability of default is believed to be low.The other was issued by a corporation and the probability of default is believed to be high.Which of the following is correct?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The Venezuelan government bond would l...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

What is the main function of the financial system?

Correct AnswerverifiedMatching s...View AnswerShow 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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The real i...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified

Correct Answer
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Correct Answer
verified
a.The Venezuelan government bond would l...
View Answer

Correct Answer
verified

Correct Answer
verified
Matching s...
View Answer