Question 1

Which of the following statements is correct?

Accepted Answer

A)   A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories.
B)   On average, indexed funds outperform managed funds.
C)   Unlike corporate bonds and stocks, checking accounts are a store of value.
D)   Financial intermediaries are institutions through which savers can directly provide funds to borrowers.E) A) and D)
F) C) and D)

Question 2

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Accepted Answer

A)   Kroger's plans to use equity financing and its action is part of the demand for loanable funds.
B)   Kroger's plans to use equity financing and its action is part of the supply of loanable funds.
C)   Kroger's plans to use debt financing and its action is part of the demand for loanable funds.
D)   Kroger's plans to use debt financing and its action is part of the supply of loanable funds.E) C) and D)
F) A) and B)

Question 3

The sale of bonds

Accepted Answer

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

Question 4

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

Accepted Answer

A)   high, perhaps indicating that people expect future earnings to rise.
B)   high, perhaps indicating that people expect future earnings to fall.
C)   low, perhaps indicating that people expect future earnings to rise.
D)   low, perhaps indicating that people expect future earnings to fall.E) B) and C)
F) All of the above

Question 5

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

Question 6

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)   credit risk.
B)   interest risk.
C)   term risk.
D)   private risk.E) A) and B)
F) All of the above

Question 7

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

Question 8

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

Question 9

A low P/E for a stock indicates that

Accepted Answer

A)   people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition.
B)   its dividends have been low so that no one is willing to pay very much for it.
C)   the corporation is possibly overvalued.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 10

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Accepted Answer

A)   only Jim's
B)   only ABC Corporation's
C)   Jim's and ABC Corporation's
D)   neither Jim's nor ABC Corporation'sE) None of the above
F) A) and C)

Question 11

Other things the same, when the interest rate rises,

Accepted Answer

A)   people would want to lend more, making the supply of loanable funds increase.
B)   people would want to lend less, making the supply of loanable funds decrease.
C)   people would want to lend more, making the quantity of loanable funds supplied increase.
D)   people would want to lend less, making the quantity of loanable funds supplied decrease.E) B) and D)
F) All of the above

Question 12

If the budget deficit increases then

Accepted Answer

A)   saving and the interest rate rise
B)   saving rises and the interest rate falls
C)   saving falls and the interest rate rises
D)   saving and the interest rate fallsE) B) and D)
F) A) and D)

Question 13

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 14

Other things the same, which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)   a bond issued by a state with a very good credit rating
B)   a bond issued by the U.S. government
C)   a bond issued by a fairly new company doing genetic research
D)   a bond issued by NabiscoE) A) and B)
F) B) and D)

Question 15

The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $2 billion in taxes. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A)   -$2 billion and $1 billion.
B)   $1 billion and $1 billion.
C)   -$1 billion and $3 billion.
D)   -$2 billion and $3 billion.E) A) and B)
F) A) and C)

Question 16

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 B)
F) A) and C)

Question 17

A decrease in the budget deficit

Accepted Answer

A)   makes investment spending fall.
B)   makes investment spending rise.
C)   does not affect investment spending.
D)   may increase, decrease, or not affect investment spending if private saving doesn't change.E) A) and D)
F) A) and B)

Question 18

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

Question 19

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

Question 20

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

Exam 8: Saving, Investment, and the Financial System

A decrease in the budget deficit

Correct Answer
verified

A low P/E for a stock indicates that

Correct Answer
verified

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

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

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

Correct Answer
verified

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

Correct Answer
verified

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Correct Answer
verified

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

If the budget deficit increases then

Correct Answer
verified

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Correct Answer
verified

Correct Answer
verified

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

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

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

Other things the same, when the interest rate rises,

Correct Answer
verified

Other things the same, which bond would you expect to pay the lowest interest rate?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

An increase in the budget deficit would cause a

Correct Answer
verified

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

Correct Answer
verified

The sale of bonds

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

A decrease in the budget deficit

Correct AnswerverifiedShow Answer

A low P/E for a stock indicates that

Correct AnswerverifiedShow Answer

Alpha Corporation has a price of $5 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio which is

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

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Correct AnswerverifiedShow 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

If the budget deficit increases then

Correct AnswerverifiedShow Answer

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow 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

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

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

Other things the same, when the interest rate rises,

Correct AnswerverifiedShow Answer

Other things the same, which bond would you expect to pay the lowest interest rate?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

An increase in the budget deficit would cause a

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The sale of bonds

Correct AnswerverifiedShow Answer

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

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