Question 1

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A)  Federal Reserve system.
B)  banking system.
C)  monetary system.
D)  financial system.E) C) and D)
F) B) and D)

Question 2

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 3

A corporation's earnings are the amount of revenue it receives for the sale of its products

Accepted Answer

A)  minus its cost of production as measured by its accountants. Earnings must be paid out as dividends.
B)  minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation.
C)  minus its direct and indirect costs as measured by its economists. Earnings must be paid out as dividends.
D)  minus its direct and indirect cost as measure by its economists. Earnings may be paid out as dividends or retained by the corporation.E) A) and B)
F) C) and D)

Question 4

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

Accepted Answer

A)  The government budget went from surplus to deficit.
B)  The government instituted an investment tax credit.
C)  The government reduced the tax rate on savings.
D)  None of the above is correct.E) C) and D)
F) A) and B)

Question 5

Which of the following would shift the demand for loanable funds to the right?

Accepted Answer

A)  income tax increases
B)  government expenditures increase
C)  the interest rate falls
D)  Congress and the president pass an investment tax creditE) B) and C)
F) B) and D)

Question 6

A closed economy

Accepted Answer

A)  does not engage in international trade of goods and services.
B)  does not engage in international borrowing or lending.
C)  both A and B
D)  engages in international borrowing and lending.E) B) and C)
F) A) and D)

Question 7

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)  the supply of loanable funds does not change; a higher interest rate reduces private saving
B)  the supply of loanable funds does not change; a higher interest rate raises private saving
C)  at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving
D)  at any interest rate the supply of loanable funds is less; a higher interest rate raises private savingE) None of the above
F) All of the above

Question 8

A bond buyer is a

Accepted Answer

A)  saver. Bond buyers must hold their bonds until maturity.
B)  saver. Bond buyers may sell their bonds prior to maturity.
C)  borrower. Bond buyers must hold their bonds until maturity.
D)  borrower. Bond buyers may sell their bonds prior to maturity.E) B) and C)
F) C) and D)

Question 9

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease, ...

Question 10

People who buy newly issued stock in a corporation such as Crate and Barrel provide

Accepted Answer

A)  debt finance and so become part owners of Crate and Barrel.
B)  debt finance and so become creditors of Crate and Barrel.
C)  equity finance and so become part owners of Crate and Barrel.
D)  equity finance and so become creditors of Crate and Barrel.E) B) and C)
F) A) and C)

Question 11

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 12

Which of the following would necessarily increase the equilibrium interest rate?

Accepted Answer

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

Question 13

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Accepted Answer

A) True 
 B)False

Question 14

The interest rate will _____ and the quantity of loanable funds invested will _____ when the government decreases the budget deficit.

Accepted Answer

The answer of The interest rate will _____ and the...

Question 15

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

Accepted Answer

A)  the nominal interest rate
B)  the real interest rate
C)  the inflation rate
D)  the dividend yieldE) All of the above
F) B) and C)

Question 16

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Accepted Answer

A)  earnings.
B)  retained earnings.
C)  economic, or real, profit.
D)  dividend.E) None of the above
F) B) and C)

Question 17

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

The answer of Bond A and Bond B are identical...

Question 18

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Accepted Answer

A)  borrowing directly.
B)  borrowing indirectly.
C)  lending directly.
D)  lending indirectly.E) None of the above
F) A) and C)

Question 19

A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.

Accepted Answer

The answer of A higher interest rate makes _____ less...

Question 20

An increase in the budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Exam 26: Saving, Investment, and the Financial System

Public saving is equal to national saving minus private saving.

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The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

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The interest rate will _____ and the quantity of loanable funds invested will _____ when the government decreases the budget deficit.

Correct AnswerverifiedShow Answer

People who buy newly issued stock in a corporation such as Crate and Barrel provide

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An increase in the budget deficit shifts the demand for loanable funds to the right.

Correct AnswerverifiedShow Answer

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

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Which of the following would necessarily increase the equilibrium interest rate?

Correct AnswerverifiedShow Answer

A bond buyer is a

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A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.

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

Correct AnswerverifiedShow Answer

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct AnswerverifiedShow Answer

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Correct Answerverifieddecrease, ...View AnswerShow Answer

A closed economy

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Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. What, specifically, does the label on the vertical axis, i, represent?

Correct AnswerverifiedShow Answer

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Correct AnswerverifiedShow Answer

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

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

Which of the following are effects of an increased budget deficit?

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A corporation's earnings are the amount of revenue it receives for the sale of its products

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Which of the following would shift the demand for loanable funds to the right?

Correct AnswerverifiedShow Answer

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The interest rate will _ and the quantity of loanable funds invested will _ when the government decreases the budget deficit.

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An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

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decrease, ...
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