Question 1

A government may use deficit financing to smooth tax rates over time.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following equations represents GDP for a closed economy?

Accepted Answer

A)  Y = C + I + G + T
B)  S = I - G
C)  I = Y - C + G
D)  Y = C + I + GE) A) and B)
F) All of the above

Question 3

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A)  The government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
B)  Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital.
C)  Consumers decide to decrease consumption and work more.
D)  All of the above could explain why the interest rate would be unchanged.E) A) and B)
F) A) and C)

Question 4

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

Accepted Answer

A)  20, which is high compared to historical standards of the market.
B)  20, which is low compared to historical standards of the market.
C)  10, which is low compared to historical standards of the market.
D)  10, which is high compared to historical standards of the market.E) None of the above
F) C) and D)

Question 5

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Accepted Answer

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

Question 6

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A)  the rich to the poor.
B)  financial institutions to business firms and government.
C)  households to financial institutions.
D)  savers to borrowers.E) B) and D)
F) A) and D)

Question 7

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 B)
F) None of the above

Question 8

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

Accepted Answer

A)  Other things equal, the interest rate on XYZ Corporation bonds will be high relative to the interest rate on ABC Corporation bonds.
B)  An ABC Corporation bond must have a longer term than an XYZ Corporation.
C)  XYZ Corporation bonds carry less default risk than do ABC Corporation bonds.
D)  All of the above are correct.E) A) and D)
F) A) and C)

Question 9

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

Question 10

A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Accepted Answer

The answer of A _____ does not engage in international...

Question 11

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The demand for loana...

Question 12

Which of the following is not always correct for a closed economy?

Accepted Answer

A)  National saving equals private saving plus public saving.
B)  Net exports equal zero.
C)  Real GDP measures both income and expenditures.
D)  Private saving equals investment.E) A) and B)
F) A) and C)

Question 13

Which of the following is not correct?

Accepted Answer

A)  Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services.
B)  In a closed economy net exports are zero.
C)  National saving is the sum of private saving and public saving.
D)  Purchases of capital goods are excluded from GDP.E) A) and D)
F) A) and B)

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

A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Accepted Answer

The answer of A _____ does not engage in international...

Question 16

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Accepted Answer

A)  reduce private saving and public saving.
B)  increase private saving but not public saving.
C)  increase public saving but not private saving.
D)  increase neither private nor public saving.E) B) and D)
F) C) and D)

Question 17

The slope of the supply of loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment.
B)  positive relation between the real interest rate and saving.
C)  negative relation between the real interest rate and investment.
D)  negative relation between the real interest rate and saving.E) B) and D)
F) C) and D)

Question 18

Which of the following is not correct?

Accepted Answer

A)  By saving a larger portion of its GDP, a country can raise its output per worker.
B)  Savers supply their money to the financial system with the expectation that they will get it back with a return at a later date.
C)  Financial intermediaries are the only type of financial institution.
D)  The financial system helps match people's saving with other people's borrowing.E) All of the above
F) A) and D)

Question 19

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Accepted Answer

Private saving is $550 billion...

Question 20

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

Accepted Answer

A)  national saving = private saving.
B)  total income = consumption + investment.
C)  saving = total income - consumption.
D)  All of the above are correct.E) A) and D)
F) A) and C)

Exam 26: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Correct AnswerverifiedPrivate saving is $550 billion...View AnswerShow Answer

A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Correct AnswerverifiedShow Answer

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Correct AnswerverifiedShow Answer

A _____ does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds curve represents the

Correct AnswerverifiedShow Answer

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Correct AnswerverifiedThe demand for loana...View AnswerShow Answer

Longview Corporation has a stock price of $60, has issued 1,000,000 shares of stock, has retained earnings of $3 million dollars, and a dividend yield of 5 percent. The price-earnings ratio for Longview stock is

Correct AnswerverifiedShow Answer

A government may use deficit financing to smooth tax rates over time.

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

At the broadest level, the financial system moves the economy's scarce resources from

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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

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Correct AnswerverifiedShow Answer

Potential buyers of ABC Corporation bonds are concerned about ABC Corporation declaring bankruptcy. Potential buyers of XYZ Corporation bonds are not concerned that XYZ Corporation may declare bankruptcy. Which of the following statements is correct?

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

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Which of the following statements about mutual funds is correct?

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In a closed economy, if Y, C, and T remained the same, a decrease in G would

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Which of the following equations represents GDP for a closed economy?

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Which of the following is not correct?

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Which of the following is not always correct for a closed economy?

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Private saving is $550 billion...
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The demand for loana...
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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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