Question 1

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Accepted Answer

A)  both the government debt and interest rates increased between 2010 and 2011.
B)  both the government debt and interest rates decreased between 2010 and 2011.
C)  the government debt increased and interest rates decreased between 2010 and 2011.
D)  the government debt decreased and interest rates increased between 2010 and 2011.E) A) and B)
F) All of the above

Question 2

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)  raise national saving and public saving.
B)  raise national saving and raise public saving.
C)  leave national saving and public saving unchanged.
D)  leave national saving unchanged and raise public saving.E) C) and D)
F) A) and B)

Question 3

Borrowers can (and sometimes do)  default on their loans when

Accepted Answer

A)  the dividend yield on their shares of stock reaches zero.
B)  they convert their bonds into perpetuities.
C)  they declare bankruptcy.
D)  they cannot find enough buyers of their bonds to sell all the bonds they wish to sell.E) B) and C)
F) A) and D)

Question 4

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A)  $460 million merits and $150 million merits
B)  $310 million merits and $190 million merits
C)  $350 million merits and $190 million merits
D)  $390 million merits and $110 million meritsE) A) and B)
F) A) and C)

Question 5

The ratio of debt to GDP in the United States

Accepted Answer

A)  tends to rise during wars.
B)  rose during the decade that began in 2001.
C)  fell during the late 1990s.
D)  All of the above are correct.E) A) and B)
F) A) and C)

Question 6

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Accepted Answer

Investment spending ...

Question 7

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price-earnings ratio?

Accepted Answer

A)  23.1
B)  18.75
C)  15
D)  30E) B) and C)
F) All of the above

Question 8

Stock represents

Accepted Answer

A)  a claim to a share of the profits of a firm.
B)  ownership in a firm.
C)  equity finance.
D)  All of the above are correctE) A) and C)
F) A) and B)

Question 9

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 10

A high price-earnings ratio for a stock indicates that either the stock is

Accepted Answer

A)  undervalued or people are relatively optimistic about the corporation's prospects.
B)  overvalued or people are relatively optimistic about the corporation's prospects.
C)  overvalued or people are relatively pessimistic about the corporation's prospects.
D)  undervalued or people are relatively pessimistic about the corporation's prospects.E) None of the above
F) B) and C)

Question 11

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Accepted Answer

A)  S = I.
B)  S = 0.
C)  I = S + NX.
D)  S = I + NX.E) None of the above
F) B) and C)

Question 12

The source of the supply of loanable funds is

Accepted Answer

A)  saving, and the source of the demand for loanable funds is investment.
B)  consumption, and the source of the demand for loanable funds is investment.
C)  investment, and the source of the demand for loanable funds is saving.
D)  the interest rate, and the source of the demand for loanable funds is saving.E) A) and C)
F) B) and C)

Question 13

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Accepted Answer

A)  saver or as a supplier of funds.
B)  saver or as a demander of funds.
C)  borrower or as a supplier of funds.
D)  borrower or as a demander of funds.E) B) and C)
F) A) and C)

Question 14

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Accepted Answer

A)  breach.
B)  default.
C)  risk.
D)  term failure.E) All of the above
F) A) and B)

Question 15

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national saving are both $1 billion.

Accepted Answer

A) True 
 B)False

Question 16

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

Accepted Answer

A)  investment is $6 billion and consumption is $7 billion.
B)  investment is $6 billion and consumption is $6 billion.
C)  investment is $7 billion and consumption is $7 billion.
D)  investment is $7 billion and consumption is $6 billion.E) C) and D)
F) None of the above

Question 17

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 18

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Question 19

Crowding out occurs when investment declines because

Accepted Answer

A)  a budget deficit makes interest rates rise.
B)  a budget deficit makes interest rates fall.
C)  a budget surplus makes interest rates rise.
D)  a budget surplus makes interest rates fall.E) A) and B)
F) All of the above

Question 20

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Accepted Answer

municipal,...

Exam 26: Saving, Investment, and the Financial System

Crowding out occurs when investment declines because

Correct Answer
verified

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Correct Answer
verified

The source of the supply of loanable funds is

Correct Answer
verified

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Correct Answer
verified

Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answer
verified
municipal,...
View Answer

The ratio of debt to GDP in the United States

Correct Answer
verified

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Correct Answer
verified

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Correct Answer
verified

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Correct Answer
verified

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct Answer
verified

A high price-earnings ratio for a stock indicates that either the stock is

Correct Answer
verified

Correct Answer
verified

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Correct Answer
verified
Investment spending ...
View Answer

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national saving are both $1 billion.

Correct Answer
verified

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct Answer
verified

Borrowers can (and sometimes do) default on their loans when

Correct Answer
verified

Stock represents

Correct Answer
verified

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct Answer
verified

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price-earnings ratio?

Correct Answer
verified

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

Crowding out occurs when investment declines because

Correct AnswerverifiedShow Answer

Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a

Correct AnswerverifiedShow Answer

The source of the supply of loanable funds is

Correct AnswerverifiedShow Answer

Suppose the issuer of a bond fails to pay some of the interest or principal that was promised to the bondholders. This failure is referred to as a

Correct AnswerverifiedShow Answer

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answerverifiedmunicipal,...View AnswerShow Answer

The ratio of debt to GDP in the United States

Correct AnswerverifiedShow Answer

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that

Correct AnswerverifiedShow Answer

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Correct AnswerverifiedShow Answer

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Correct AnswerverifiedShow Answer

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct AnswerverifiedShow Answer

A high price-earnings ratio for a stock indicates that either the stock is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Correct AnswerverifiedInvestment spending ...View AnswerShow Answer

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national saving are both $1 billion.

Correct AnswerverifiedShow Answer

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct AnswerverifiedShow Answer

Borrowers can (and sometimes do) default on their loans when

Correct AnswerverifiedShow Answer

Stock represents

Correct AnswerverifiedShow Answer

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct AnswerverifiedShow Answer

Bountiful Tractors has a share price of $60, retained earnings of $2 per share, and a dividend yield of 2 percent. What is Bountiful Tractor's price-earnings ratio?

Correct AnswerverifiedShow Answer

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answer
verified
municipal,...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Investment spending ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified