Question 1

Which of the following is not always correct for a closed economy?

Accepted Answer

A)   National saving equals private saving plus public saving.
B)   Net exports equal zero.
C)   Real GDP measures both income and expenditures.
D)   Private saving equals investment.E) None of the above
F) A) and C)

Question 2

The primary advantage of mutual funds is that they

Accepted Answer

A)   always provide the highest return.
B)   always allow people to "beat the market."
C)   allow people to diversify and reduce risk.
D)   allow people to diversify, which increases risk and return.E) A) and B)
F) A) and C)

Question 3

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?

Accepted Answer

A)   1.25%.
B)   5.0%.
C)   3.4%.
D)   10.6%.E) A) and C)
F) A) and B)

Question 4

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is ($45 million -...

Question 5

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 6

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)   the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.
B)   the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.
C)   both the demand for and supply of loanable funds are more elastic.
D)   both the demand for and supply of loanable funds are more inelastic.E) B) and D)
F) B) and C)

Question 7

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Accepted Answer

A)   $2.
B)   $3.
C)   $5.
D)   $8.E) A) and D)
F) A) and C)

Question 8

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

Question 9

Which of the following is included in the demand for loanable funds?

Accepted Answer

A)   investment and government borrowing
B)   investment but not government borrowing
C)   government borrowing but not investment
D)   neither government borrowing nor investmentE) B) and C)
F) None of the above

Question 10

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A)   invest in physical capital.
B)   use equity finance.
C)   sell bonds.
D)   purchase bonds.E) None of the above
F) A) and D)

Question 11

If an economy is closed and if it has no government, then

Accepted Answer

A)   national saving = 0.
B)   national saving = private saving.
C)   public saving = investment.
D)   gross domestic product = consumption.E) B) and C)
F) C) and D)

Question 12

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

Question 13

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Accepted Answer

A)   private and national saving would rise
B)   private and national saving would fall
C)   private saving would rise and national saving would fall
D)   private saving would fall and national saving would riseE) B) and C)
F) A) and D)

Question 14

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 15

If a reform of the tax laws encourages greater saving, the result would be

Accepted Answer

A)   higher interest rates and greater investment.
B)   higher interest rates and less investment.
C)   lower interest rates and greater investment.
D)   lower interest rate and less investment.E) A) and C)
F) A) and B)

Question 16

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 17

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Question 20

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Exam 26: Saving, Investment, and the Financial System

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

Correct Answer
verified

Financial crises seldom involve economic downturns.

Correct Answer
verified

If a reform of the tax laws encourages greater saving, the result would be

Correct Answer
verified

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct Answer
verified

An increase in the government's budget deficit means

Correct Answer
verified

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Correct Answer
verified

National saving is equal to Y - T - C.

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

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Correct Answer
verified

Which of the following is not always correct for a closed economy?

Correct Answer
verified

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

Correct Answer
verified

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?

Correct Answer
verified

If an economy is closed and if it has no government, then

Correct Answer
verified

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Correct Answer
verified

The primary advantage of mutual funds is that they

Correct Answer
verified

Which of the following is included in the demand for loanable funds?

Correct Answer
verified

Correct Answer
verified
The earnings per share is ($45 million -...
View Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct Answer
verified
The claim that an increase in the intere...
View Answer

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Correct Answer
verified

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Financial crises seldom involve economic downturns.

Correct AnswerverifiedShow Answer

If a reform of the tax laws encourages greater saving, the result would be

Correct AnswerverifiedShow Answer

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct AnswerverifiedShow Answer

An increase in the government's budget deficit means

Correct AnswerverifiedShow Answer

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to private and national saving?

Correct AnswerverifiedShow Answer

National saving is equal to Y - T - C.

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

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Correct AnswerverifiedShow Answer

Which of the following is not always correct for a closed economy?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Over-the-Rhine Cheese Corporation had a P/E ratio of 20, retained earnings of $0.80 per share and a dividend of $1.70. What was its dividend yield?

Correct AnswerverifiedShow Answer

If an economy is closed and if it has no government, then

Correct AnswerverifiedShow Answer

Buskin's Corporation has issued 2 million shares of stock. Its earnings were $10 million, of which it retained 40 percent. What was the dividend per share?

Correct AnswerverifiedShow Answer

The primary advantage of mutual funds is that they

Correct AnswerverifiedShow Answer

Which of the following is included in the demand for loanable funds?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedThe earnings per share is ($45 million -...View AnswerShow Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Correct AnswerverifiedShow Answer

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

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
verified
The earnings per share is ($45 million -...
View Answer

Correct Answer
verified
The claim that an increase in the intere...
View Answer

Correct Answer
verified

Correct Answer
verified