Question 1

The purchase of a new house is the one form of

Accepted Answer

A)   investment that is financed by private saving rather than public saving.
B)   household spending that is not counted as part of investment in the national income accounts.
C)   household spending that is investment rather than consumption.
D)   household spending that does not contribute to GDP.E) A) and B)
F) C) and D)

Question 2

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

Question 3

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

Question 4

Which of the following statements about mutual funds is correct?

Accepted Answer

A)   A mutual fund is not a financial intermediary.
B)   A disadvantage of buying mutual funds is a lack of diversification
C)   People who buy shares from a mutual fund are guaranteed a minimum return.
D)   On average index funds outperform managed funds.E) B) and D)
F) B) and C)

Question 5

Suppose government expenditures on goods and services and net taxes both decrease,and expenditures fall by more than net taxes.The effects of these changes on the budget deficit cause

Accepted Answer

A)   both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall.
B)   both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise.
C)   the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall.
D)   the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.E) A) and D)
F) A) and C)

Question 6

Which of the following is not correct?

Accepted Answer

A)   American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan.
B)   Saving is an important long-run determinant of a nation's standard of living.
C)   A change in tax laws that encouraged greater saving would lower interest rates.
D)   Taxes on interest income can substantially decrease the future value of current saving.E) B) and C)
F) All of the above

Question 7

The identity that shows that total income and total expenditure are equal is

Accepted Answer

A)   GDP = Y.
B)   Y = DI + T + NX.
C)   GDP = GNP - NX.
D)   Y = C + I + G + NX.E) A) and B)
F) None of the above

Question 8

An increase in the budget deficit would cause a

Accepted Answer

A)   shortage of loanable funds at the original interest rate,which would lead to falling interest rates.
B)   surplus of loanable funds at the original interest rate,which would lead to rising interest rates.
C)   shortage of loanable funds at the original interest rate,which would lead to rising interest rates.
D)   surplus of loanable funds at the original interest rate,which would lead to falling interest rates.E) A) and C)
F) B) and C)

Question 9

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.Which of the following events could explain a shift of the demand-for-loanable-funds curve from  to  ?

Accepted Answer

A)   The tax code is reformed to encourage greater saving.
B)   The tax code is reformed to encourage greater investment.
C)   The government starts running a budget deficit.
D)   The government starts running a budget surplus.E) All of the above
F) A) and D)

Question 10

If there is a shortage of loanable funds,then

Accepted Answer

A)   the quantity demanded is greater than the quantity supplied and the interest rate will rise.
B)   the quantity demanded is greater than the quantity supplied and the interest rate will fall.
C)   the quantity supplied is greater than the quantity demanded and the interest rate will rise.
D)   the quantity supplied is greater than the quantity demanded and the interest rate will fall.E) A) and C)
F) B) and D)

Question 11

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

Accepted Answer

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

Question 12

Public saving is T - G,while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 13

If the supply of and demand for loanable funds both shift right,which of the following necessarily happens?

Accepted Answer

A)   the equilibrium interest rate falls
B)   the equilibrium interest rate rises
C)   the equilibrium quantity of loanable funds rises
D)   the equilibrium quantity of loanable funds fallsE) B) and C)
F) None of the above

Question 14

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

Accepted Answer

A)   The government runs a larger deficit.
B)   The government institutes an investment tax credit.
C)   The government replaces the income tax with a consumption tax.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 15

Which of the following is correct?

Accepted Answer

A)   The maturity of a bond refers to the amount to be paid back.
B)   The principal of the bond refers to the person selling the bond.
C)   A bond buyer cannot sell a bond before it matures.
D)   None of the above is correct.E) A) and D)
F) All of the above

Question 16

XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?

Accepted Answer

A)   4%
B)   3%
C)   1%
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 17

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

Question 18

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) None of the above

Question 19

By definition,equity finance

Accepted Answer

A)   is accomplished when units of government sell bonds.
B)   is accomplished when firms sell bonds.
C)   is accomplished when firms sell shares of stock.
D)   involves "fair" interest rates or dividend yields.E) A) and D)
F) C) and D)

Question 20

The prices of stock traded on exchanges are determined by

Accepted Answer

A)   the Corporate Stock Administration.
B)   the administrators of NASDAQ.
C)   the supply of,and demand for,the stock.
D)   All of the above are correct.E) B) and C)
F) A) and C)

Exam 26: Saving,investment,and the Financial System

Which of the following is not correct?

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The prices of stock traded on exchanges are determined by

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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

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An increase in the budget deficit would cause a

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Northwest Wholesale Foods sells common stock.The company is using

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

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XDF Corporation had a P/E ratio of 25,earnings per share of $4,and retained earnings per share of $3.What was its dividend yield?

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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.Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

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Which of the following is correct?

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

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Suppose government expenditures on goods and services and net taxes both decrease,and expenditures fall by more than net taxes.The effects of these changes on the budget deficit cause

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The identity that shows that total income and total expenditure are equal is

Correct AnswerverifiedShow Answer

The purchase of a new house is the one form of

Correct AnswerverifiedShow Answer

Public saving is T - G,while private saving is Y - T - C.

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If the supply of and demand for loanable funds both shift right,which of the following necessarily happens?

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By definition,equity finance

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

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If there is a shortage of loanable funds,then

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Which of the following statements about mutual funds is correct?

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