Question 1

Which of the following people purchased the correct asset to meet his or her objective?

Accepted Answer

A)   Michelle wanted to be a part owner of Mamma Rosa's Pizza,so she purchased a bond issued by Mamma Rosa's Pizza.
B)   Tim wanted a high return,even if it meant taking some risk,so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric.
C)   Jennifer wanted to buy equity in Honda,so she purchased bonds sold by Honda.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 2

In the national income accounting identity showing the equality between national saving and investment,what are the algebraic expressions for private saving and public saving?

Accepted Answer

Private saving is Y ...

Question 3

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False

Question 4

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

Question 5

The primary advantage of mutual funds is that they

Accepted Answer

A)   always make a return that "beats the market."
B)   allow people with small amounts of money to diversify.
C)   provide customers with a medium of exchange.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 6

Other things the same,an increase in government expenditures with no change in taxes makes national saving

Accepted Answer

A)   rise.The supply of loanable funds shifts right.
B)   rise.The demand for loanable funds shifts right.
C)   fall.The supply of loanable funds shifts left.
D)   fall.The demand for loanable funds shifts left.E) A) and B)
F) None of the above

Question 7

Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Accepted Answer

A)   1 percent.
B)   2 percent.
C)   4 percent.
D)   5 percent.E) A) and C)
F) None of the above

Question 8

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)   creditors of General Electric,so the benefits of holding the stock depend on General Electric's profits.
B)   creditors of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.
C)   part owners of General Electric,so the benefits of holding the stock depend on General Electric's profits.
D)   part owners of General Electric,but the benefits of holding the stock do not depend on General Electric's profits.E) None of the above
F) A) and B)

Question 9

Table 18-1
 
-Refer to Table 18-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of Gillette stock traded that day?

Accepted Answer

A)   $912,840,000
B)   $91,284,000
C)   $9,128,400
D)   $912,840E) A) and B)
F) A) and D)

Question 10

Which of the following could explain an increase 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) C) and D)
F) A) and C)

Question 11

Potential buyers of ABC Corporation bonds are not concerned about ABC Corporation declaring bankruptcy.Potential buyers of XYZ Corporation bonds are 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 is a perpetuity,whereas an XYZ Corporation bond is not a perpetuity.
C)   XYZ Corporation bonds carry more interest-rate risk than do ABC Corporation bonds.
D)   All of the above are correct.E) A) and D)
F) A) and C)

Question 12

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Accepted Answer

A) True 
 B)False

Question 13

Table 18-2
 
-Refer to Table 18-2.Which company had the lowest dollar dividend?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   H.J.Heinz and Co.
D)   Kellog Co.E) A) and D)
F) B) and C)

Question 14

Retained earnings are

Accepted Answer

A)   earnings of a company that are not paid out to stockholders.
B)   the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C)   the single most important piece of information about a stock.
D)   computed by multiplying the dividend yield by the price of the stock.E) B) and D)
F) A) and D)

Question 15

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) All of the above
F) C) and D)

Question 16

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 17

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Question 18

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A)   there is a surplus and the interest rate is above the equilibrium level.
B)   there is a surplus and the interest rate is below the equilibrium level.
C)   there is a shortage and the interest rate is above the equilibrium level.
D)   there is a shortage and the interest rate is below the equilibrium level.E) B) and C)
F) None of the above

Question 19

We associate the term debt finance with

Accepted Answer

A)   the bond market,and we associate the term equity finance with the stock market.
B)   the stock market,and we associate the term equity finance with the bond market.
C)   financial intermediaries,and we associate the term equity finance with financial markets.
D)   financial markets,and we associate the term equity finance with financial intermediaries.E) A) and B)
F) A) and D)

Question 20

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

Accepted Answer

A)   raise both private and public saving.
B)   raise private saving and lower public saving.
C)   lower private saving and raise public saving.
D)   lower private and public saving.E) None of the above
F) B) and D)

Exam 18: Saving,investment,and the Financial System

Which of the following is not correct?

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Lenders buy bonds and borrowers sell them.

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If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

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Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

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Financial crises seldom involve economic downturns.

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

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We associate the term debt finance with

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

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Which of the following people purchased the correct asset to meet his or her objective?

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Table 18-1 -Refer to Table 18-1.Assume that the closing price was also the average price at which each stock transaction took place.What was the total dollar volume of Gillette stock traded that day?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

In the national income accounting identity showing the equality between national saving and investment,what are the algebraic expressions for private saving and public saving?

Correct AnswerverifiedPrivate saving is Y ...View AnswerShow Answer

The term loanable funds refers to all income that is not used for consumption or government expenditures.

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Retained earnings are

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Stock in Tasty Greens Restaurants is selling at $80 per share with 1 million shares outstanding.Last year,Tasty Greens earned $5 million,of which it retained $1 million for future investments.The dividend yield on the stock is

Correct AnswerverifiedShow Answer

Other things the same,an increase in government expenditures with no change in taxes makes national saving

Correct AnswerverifiedShow Answer

People who buy stock in a corporation such as General Electric become

Correct AnswerverifiedShow Answer

The primary advantage of mutual funds is that they

Correct AnswerverifiedShow Answer

Table 18-2 -Refer to Table 18-2.Which company had the lowest dollar dividend?

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The slope of the supply of loanable funds curve represents the

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Private saving is Y ...
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