Question 1

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 2

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)  3
B)  8
C)  15
D)  26E) C) and D)
F) All of the above

Question 3

Which of the following expressions must be equal to national saving for a closed economy?

Accepted Answer

A)  Y - I - G - NX
B)  Y - C - G
C)  Y - I - C
D)  G + C - YE) A) and B)
F) A) and D)

Question 4

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 5

The single most important piece of information about a stock is its

Accepted Answer

A)  term.
B)  dividend.
C)  daily volume.
D)  price.E) All of the above
F) B) and D)

Question 6

Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50;
taxes = $230; private saving = $225; and national saving = $150.
-Refer to Scenario 26-3. For this economy, GDP equals

Accepted Answer

A)  $1,480.
B)  $1,505.
C)  $1,460
D)  $1,455.E) None of the above
F) B) and D)

Question 7

Other things the same, an increase in the interest rate

Accepted Answer

A)  would shift the demand for loanable funds to the right.
B)  would shift the demand for loanable funds to the left.
C)  would increase the quantity of loanable funds demanded.
D)  would decrease the quantity of loanable funds demanded.E) B) and C)
F) A) and C)

Question 8

When the government's budget deficit increases

Accepted Answer

A)  the government is borrowing less and public savings falls.
B)  the government is borrowing less and public savings increases.
C)  the government is borrowing more and public savings falls.
D)  the government is borrowing more and public savings increases.E) All of the above
F) B) and D)

Question 9

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

Accepted Answer

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

Question 10

​Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by

Accepted Answer

A)  ​borrowing money from a friend.
B)  selling shares of future profits.
C)  ​using his own savings.
D)  ​All of the above.E) C) and D)
F) B) and D)

Question 11

According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?

Accepted Answer

A)  Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories.
B)  The government goes from running a budget deficit to running a budget surplus.
C)  Congress passes a reform of the tax laws that encourages greater saving.
D)  Congress passes a reform of the tax laws that encourages greater investment.E) A) and B)
F) A) and D)

Question 12

Crowding out occurs when

Accepted Answer

A)  investment declines because a budget deficit makes interest rates rise.
B)  investment declines because a budget deficit makes interest rates fall.
C)  investment increases because a budget surplus makes interest rates rise.
D)  investment increases because a budget surplus makes interest rates fall.E) C) and D)
F) B) and D)

Question 13

A policy that induces people to save more shifts

Accepted Answer

A)  the supply of loanable funds rightward and increases investment.
B)  the supply of loanable funds leftward and decreases investment.
C)  the supply of loanable funds rightward and decreases investment.
D)  the supply of loanable funds leftward and increases investment.E) C) and D)
F) B) and D)

Question 14

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?

Accepted Answer

A)  20, 2.5 percent.
B)  20, 5 percent.
C)  40, 2.5 percent.
D)  40, 5 percent.E) C) and D)
F) B) and D)

Question 15

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Accepted Answer

A)  large decline in some asset prices → insolvencies at financial institutions → decline in confidence in financial institutions
B)  insolvencies at financial institutions → decline in confidence in financial institutions → large decline in some asset prices
C)  insolvencies at financial institutions → economic downturn → credit crunch
D)  insolvencies at financial institutions → credit crunch → economic downturnE) A) and B)
F) All of the above

Question 16

In a closed economy, private saving is

Accepted Answer

A)  the amount of income that households have left after paying for their taxes and consumption.
B)  the amount of income that businesses have left after paying for the factors of production.
C)  the amount of tax revenue that the government has left after paying for its spending.
D)  always equal to investment.E) C) and D)
F) B) and D)

Question 17

In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.

Accepted Answer

national saving/inve...

Question 18

Which government policy raises the interest rate and raises investment spending?

Accepted Answer

An investm...

Question 19

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Accepted Answer

A)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively high.
B)  the P/E ratio of its stock will be high. A P/E ratio of 8 is relatively low.
C)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively high.
D)  the P/E ratio of its stock will be low. A P/E ratio of 8 is relatively low.E) B) and D)
F) B) and C)

Question 20

A larger budget surplus

Accepted Answer

A)  raises the interest rate and investment.
B)  reduces the interest rate and investment.
C)  raises the interest rate and reduces investment.
D)  reduces the interest rate and raises investment.E) All of the above
F) None of the above

Exam 26: Saving, Investment, and the Financial System

National saving is equal to Y - T - C.

Correct AnswerverifiedShow Answer

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Correct AnswerverifiedShow Answer

According to the loanable funds model, which of the following events would result in higher interest rates and greater saving?

Correct AnswerverifiedShow Answer

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. For this economy, GDP equals

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same, an increase in the interest rate

Correct AnswerverifiedShow Answer

Which government policy raises the interest rate and raises investment spending?

Correct AnswerverifiedAn investm...View AnswerShow Answer

When the government's budget deficit increases

Correct AnswerverifiedShow Answer

In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.

Correct Answerverifiednational saving/inve...View AnswerShow Answer

​Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by

Correct AnswerverifiedShow Answer

If people expect future earnings of Galt Corporation to be high relative to current earnings, then

Correct AnswerverifiedShow Answer

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Correct AnswerverifiedShow Answer

Historically, the typical price-earnings ratio for stocks is about

Correct AnswerverifiedShow Answer

In a closed economy, private saving is

Correct AnswerverifiedShow Answer

Crowding out occurs when

Correct AnswerverifiedShow Answer

A larger budget surplus

Correct AnswerverifiedShow Answer

The single most important piece of information about a stock is its

Correct AnswerverifiedShow Answer

Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?

Correct AnswerverifiedShow Answer

A policy that induces people to save more shifts

Correct AnswerverifiedShow Answer

Which of the following expressions must be equal to national saving for a closed economy?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
An investm...
View Answer

Correct Answer
verified

In a closed economy, Y - C - G equals ___. The variable Y is _, C is _, and G is ___.

Correct Answer
verified
national saving/inve...
View Answer

Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified