Question 1

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)  A share of stock issued by Apple.
B)  A corporate bond issued by Apple.
C)  A junk bond.
D)  A U.S. government bond.E) C) and D)
F) A) and B)

Question 2

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

A)  interest rates and the equilibrium quantity of loanable funds rise.
B)  interest rates rise and the equilibrium quantity of loanable funds fall.
C)  interest rates fall and the equilibrium quantity of loanable funds rise.
D)  interest rates and the equilibrium quantity of loanable funds fall.E) All of the above
F) A) and B)

Question 3

In a closed economy, national saving is

Accepted Answer

A)  usually greater than investment.
B)  equal to investment.
C)  usually less than investment because of the leakage of taxes.
D)  always less than investment.E) A) and B)
F) All of the above

Question 4

In a closed economy, public saving is the amount of

Accepted Answer

A)  income that households have left after paying for taxes and consumption.
B)  income that businesses have left after paying for the factors of production.
C)  tax revenue that the government has left after paying for its spending.
D)  spending that the government undertakes in excess of the taxes it collects.E) None of the above
F) A) and B)

Question 5

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Accepted Answer

A)  the inflation rate.
B)  gross domestic product.
C)  the real interest rate.
D)  the nominal interest rate.E) A) and B)
F) A) and C)

Question 6

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) C) and D)
F) None of the above

Question 7

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) None of the above
F) A) and D)

Question 8

After a corporation issues stock, the stock

Accepted Answer

A)  cannot be resold.
B)  can be resold only if the corporation wants to buy it back.
C)  can be resold on exchanges; the resale will raise additional funds for the corporation.
D)  None of the above are correct.E) B) and C)
F) A) and D)

Question 9

Other things the same, bonds are likely to have higher interest rates if they have

Accepted Answer

A)  tax exemptions and short terms.
B)  tax exemptions and long terms.
C)  no tax exemptions and short terms.
D)  no tax exemptions and long terms.E) B) and C)
F) A) and B)

Question 10

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)  increased both interest rates and investment.
B)  increased interest rates and decreased investment.
C)  decreased interest rates and increased investment.
D)  decreased both interest rates and investment.E) B) and D)
F) C) and D)

Question 11

In examining the national income accounts of the closed economy of Nepotocracy you see that this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods and services of $70 billion. You also notice that last year it had private saving of $70 billion and investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?

Accepted Answer

A)  this year and last year
B)  this year but not last year
C)  last year but not this year
D)  neither this year nor last yearE) B) and C)
F) A) and C)

Question 12

Which of the following is correct?

Accepted Answer

A)  In a closed economy, equilibrium in the market for loanable funds occurs where saving = investment.
B)  Investment is the source for the supply of loanable funds.
C)  If there is a surplus in the market for loanable funds, the interest rate rises.
D)  All of the above are correctE) C) and D)
F) B) and C)

Question 13

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 14

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A)  raise the demand for existing shares of the stock, causing the price to rise
B)  decrease the demand for existing shares of the stock, causing the price to fall
C)  raise the supply of the existing shares of stock, causing the price to rise
D)  raise the supply of the existing shares of stock, causing the price to fallE) B) and C)
F) A) and B)

Question 15

The financial system is important because it helps to match one person's _____ with another person's _____.

Accepted Answer

The answer of The financial system is important because it...

Question 16

How do banks make profits?

Accepted Answer

They charge borrower...

Question 17

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Accepted Answer

A)  and investment both would increase.
B)  and investment both would decrease.
C)  would increase and investment would decrease.
D)  would decrease and investment would increase.E) None of the above
F) B) and D)

Question 18

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

it has a longer term to maturi...

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 B)
F) A) and C)

Question 20

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

Exam 26: Saving, Investment, and the Financial System

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Correct Answer
verified

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Correct Answer
verified

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

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

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

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

After a corporation issues stock, the stock

Correct Answer
verified

In a closed economy, public saving is the amount of

Correct Answer
verified

How do banks make profits?

Correct Answer
verified
They charge borrower...
View Answer

List three characteristics of a bond that would make its interest rate higher than otherwise.

Correct Answer
verified
it has a longer term to maturi...
View Answer

Which bond is likely to have higher interest rate due to a higher default risk?

Correct Answer
verified

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Correct Answer
verified

In a closed economy, national saving is

Correct Answer
verified

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct Answer
verified

A budget deficit

Correct Answer
verified

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.

Correct Answer
verified

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Correct Answer
verified

Correct Answer
verified

The financial system is important because it helps to match one person's _ with another person's _.

Correct Answer
verified

Other things the same, bonds are likely to have higher interest rates if they have

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Correct AnswerverifiedShow Answer

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

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

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

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

After a corporation issues stock, the stock

Correct AnswerverifiedShow Answer

In a closed economy, public saving is the amount of

Correct AnswerverifiedShow Answer

How do banks make profits?

Correct AnswerverifiedThey charge borrower...View AnswerShow Answer

List three characteristics of a bond that would make its interest rate higher than otherwise.

Correct Answerverifiedit has a longer term to maturi...View AnswerShow Answer

Which bond is likely to have higher interest rate due to a higher default risk?

Correct AnswerverifiedShow Answer

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Correct AnswerverifiedShow Answer

In a closed economy, national saving is

Correct AnswerverifiedShow Answer

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines the equilibrium level of

Correct AnswerverifiedShow Answer

A budget deficit

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.

Correct AnswerverifiedShow Answer

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The financial system is important because it helps to match one person's _____ with another person's _____.

Correct AnswerverifiedShow Answer

Other things the same, bonds are likely to have higher interest rates if they have

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
They charge borrower...
View Answer

Correct Answer
verified
it has a longer term to maturi...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The financial system is important because it helps to match one person's _ with another person's _.

Correct Answer
verified

Correct Answer
verified