Question 1

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Accepted Answer

A)  $0.25 and the price-earnings ratio is 5.
B)  $.25 and the price-earnings ratio is 6.7.
C)  $1.25 and the price-earnings ratio is 5.
D)  $1.25 and the price-earnings ratio is 6.7.E) All of the above
F) B) and C)

Question 2

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A)  the interest rate and investment would rise.
B)  the interest rate would rise and investment would fall.
C)  the interest rate would fall and investment would rise.
D)  the interest rate and investment would fall.E) C) and D)
F) A) and D)

Question 3

On which of these bonds is the prospect of default most likely?

Accepted Answer

A)  a junk bond
B)  a municipal bond
C)  a U.S. government bond
D)  a corporate bond issued by Proctor & Gamble CorporationE) A) and B)
F) B) and D)

Question 4

Lenders sell bonds and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 5

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)  2,500, deficit
B)  2,500, surplus
C)  1,000, deficit
D)  1,000, surplusE) A) and B)
F) A) and C)

Question 6

Which of the following is a certificate of indebtedness?

Accepted Answer

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

Question 7

The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

Accepted Answer

A) True 
 B)False

Question 8

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

Question 9

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy...

Question 10

If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A)  14 percent.
B)  6 percent.
C)  2.5 percent.
D)  .4 percent.E) B) and C)
F) All of the above

Question 11

In 2008, XYZ Corporation had total earnings of $200 million and 50 million shares of the corporation's stock were outstanding. If the price-earnings ratio for XYZ is 20, then what is the price of a share of its stock?

Accepted Answer

A)  $5
B)  $10
C)  $80
D)  $500E) B) and C)
F) None of the above

Question 12

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. The position and/or slope of the Supply curve are influenced by

Accepted Answer

A)  the level of public saving.
B)  the level of national saving.
C)  decisions made by people who have extra income they want to save and lend out.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 13

Which of the following would a macroeconomist consider as investment?

Accepted Answer

A)  Marisa purchases a bond issued by Proctor and Gamble Corp.
B)  Karlee purchases stock issued by Texas Instruments, Inc.
C)  Charlie builds a new coffee shop.
D)  All of the above are correct.E) B) and D)
F) All of the above

Question 14

Which of the following statements is not correct?

Accepted Answer

A)  If GDP is rising faster than debt, the government is, in some sense, living within its means.
B)  The ratio of debt to GDP in the United States has always been less than one.
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations.
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose.E) A) and B)
F) A) and D)

Question 15

In a closed economy, each unit of output is either consumed or invested.

Accepted Answer

A) True 
 B)False

Question 16

Compared to stocks, bonds offer the holder

Accepted Answer

A)  lower risk and lower potential return.
B)  lower risk and higher potential return.
C)  higher risk and lower potential return.
D)  higher risk and higher potential return.E) C) and D)
F) B) and D)

Question 17

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)  raise national saving and public saving.
B)  raise national saving and raise public saving.
C)  leave national saving and public saving unchanged.
D)  leave national saving unchanged and raise public saving.E) B) and D)
F) B) and C)

Question 18

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, which manufactures wooden furniture. He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond.
a."I have reason to believe that people are soon going to find rocking chairs have health benefits."
b."I would like to tell people I am part owner of Cedar Valley Furniture."
c."I do not want to take on much risk."

Accepted Answer

a.Presumably, when this happens, unless ...

Question 19

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 20

When a corporation experiences financial problems, bondholders are paid before stockholders.

Accepted Answer

A) True 
 B)False

Exam 13: Saving, Investment, and the Financial System

When a corporation experiences financial problems, bondholders are paid before stockholders.

Correct Answer
verified

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct Answer
verified

Compared to stocks, bonds offer the holder

Correct Answer
verified

Correct Answer
verified
a.Presumably, when this happens, unless ...
View Answer

The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

Correct Answer
verified

On which of these bonds is the prospect of default most likely?

Correct Answer
verified

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct Answer
verified
As shown in the graph below, the economy...
View Answer

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Correct Answer
verified

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Correct Answer
verified

If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is

Correct Answer
verified

In a closed economy, investment must be equal to private saving.

Correct Answer
verified

Which of the following would a macroeconomist consider as investment?

Correct Answer
verified

In a closed economy, each unit of output is either consumed or invested.

Correct Answer
verified

In 2008, XYZ Corporation had total earnings of $200 million and 50 million shares of the corporation's stock were outstanding. If the price-earnings ratio for XYZ is 20, then what is the price of a share of its stock?

Correct Answer
verified

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. The position and/or slope of the Supply curve are influenced by

Correct Answer
verified

Which of the following statements is not correct?

Correct Answer
verified

Which of the following is a certificate of indebtedness?

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

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Correct Answer
verified

Lenders sell bonds and borrowers buy them.

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

When a corporation experiences financial problems, bondholders are paid before stockholders.

Correct AnswerverifiedShow Answer

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct AnswerverifiedShow Answer

Compared to stocks, bonds offer the holder

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Presumably, when this happens, unless ...View AnswerShow Answer

The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

Correct AnswerverifiedShow Answer

On which of these bonds is the prospect of default most likely?

Correct AnswerverifiedShow Answer

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below, the economy...View AnswerShow Answer

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Correct AnswerverifiedShow Answer

Stock in Creole Cuisine Restaurants is selling at $25 per share. Creole Cuisine had earnings of $5 a share and a dividend yield of 5 percent. The dividend is

Correct AnswerverifiedShow Answer

If the nominal interest rate is 10 percent and the inflation rate is 4 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

In a closed economy, investment must be equal to private saving.

Correct AnswerverifiedShow Answer

Which of the following would a macroeconomist consider as investment?

Correct AnswerverifiedShow Answer

In a closed economy, each unit of output is either consumed or invested.

Correct AnswerverifiedShow Answer

In 2008, XYZ Corporation had total earnings of $200 million and 50 million shares of the corporation's stock were outstanding. If the price-earnings ratio for XYZ is 20, then what is the price of a share of its stock?

Correct AnswerverifiedShow Answer

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. The position and/or slope of the Supply curve are influenced by

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Which of the following is a certificate of indebtedness?

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

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

Correct AnswerverifiedShow Answer

Lenders sell bonds and borrowers buy them.

Correct AnswerverifiedShow Answer

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a.Presumably, when this happens, unless ...
View Answer

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verified

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verified
As shown in the graph below, the economy...
View Answer

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