Question 1

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Accepted Answer

A) True 
 B)False

Question 2

As an alternative to selling shares of stock as a means of raising funds,a large company could,instead,

Accepted Answer

A)  invest in physical capital.
B)  use equity finance.
C)  sell bonds.
D)  purchase bonds.E) A) and B)
F) A) and C)

Question 3

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Accepted Answer

A)  Private and public saving are both positive.
B)  Private saving is positive; public saving is negative.
C)  Private saving is negative; public saving is positive.
D)  Both private saving and public saving are negative.E) B) and C)
F) A) and C)

Question 4

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture,which manufactures wooden furniture.He wants your advice on whether to buy stock or bonds.Explain how each of his quotes below should affect his choice between the stock and the bond.
a."I have reason to believe that people are soon going to find rocking chairs have health benefits."
b."I would like to tell people I am part owner of Cedar Valley Furniture."
c."I do not want to take on much risk."

Accepted Answer

a.
Presumably,when this happens,unless ...

Question 5

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 6

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it is long term
B)  the interest it pays is taxed and it is short term
C)  the interest it pays is tax exempt and it is long term
D)  the interest it pays is tax exempt and it is short termE) A) and B)
F) B) and D)

Question 8

If Japan goes from a small budget deficit to a large budget deficit,it will reduce

Accepted Answer

A)  private saving and so shift the supply of loanable funds left.
B)  investment and so shift the demand for loanable funds left.
C)  public saving and so shift the supply of loanable funds left.
D)  None of the above is correct.E) A) and B)
F) None of the above

Question 9

If the demand for loanable funds shifts to the left,then the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rise.
B)  and quantity of loanable funds fall.
C)  rises and the quantity of loanable funds falls.
D)  falls and the quantity of loanable funds rises.E) All of the above
F) A) and D)

Question 10

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 D)
F) B) and D)

Question 11

A mutual fund

Accepted Answer

A)  is a financial institution that stands between savers and borrowers.
B)  is a financial intermediary.
C)  allows people with small amounts of money to diversify their holdings.
D)  All of the above are correct.E) A) and B)
F) All of the above

Question 12

Suppose that you are a broker and people tell you the following about themselves.What sort of bond would you recommend to each?
 Defend your choices.
a."I am in a high federal income tax bracket and I don't want to take very much risk."
b."I want a high return and I am willing to take a lot of risk to get it."
c."I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a.
A municipal bond.Municipal bonds gen...

Question 13

The sale of stocks

Accepted Answer

A)  and bonds to raise money is called debt finance.
B)  and bonds to raise money is called equity finance.
C)  to raise money is called debt finance,while the sale of bonds to raise funds is called equity finance.
D)  to raise money is called equity finance,while the sale of bonds to raise funds is called debt finance.E) B) and C)
F) A) and B)

Question 14

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) A) and B)
F) B) and C)

Question 15

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

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

Question 16

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Question 17

A stock index is

Accepted Answer

A)  an average of a group of stock prices.
B)  an average of a group of stock yields.
C)  a measure of the risk relative to the profitability of corporations.
D)  a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.E) B) and D)
F) A) and B)

Question 18

Long-term bonds are

Accepted Answer

A)  riskier than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
B)  riskier than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
C)  less risky than short-term bonds,and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
D)  less risky than short-term bonds,and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) None of the above
F) A) and B)

Question 19

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

Accepted Answer

A)  The government 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) A) and D)
F) A) and B)

Question 20

If the government currently has a budget deficit,then

Accepted Answer

A)  it does not necessarily have a debt.
B)  its debt is increasing.
C)  government expenditures are greater than taxes.
D)  All of the above are correct.E) B) and D)
F) A) and B)

Exam 26: Saving,investment,and the Financial System

We associate the term debt finance with

Correct Answer
verified

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

Correct Answer
verified

As an alternative to selling shares of stock as a means of raising funds,a large company could,instead,

Correct Answer
verified

What are the basic differences between bonds and stocks?

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

A mutual fund

Correct Answer
verified

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

Correct Answer
verified

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Correct Answer
verified

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

Correct Answer
verified

Long-term bonds are

Correct Answer
verified

The sale of stocks

Correct Answer
verified

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 Answer
verified
Private saving is Y ...
View Answer

Which of the following would both make the interest rate on a bond higher than otherwise?

Correct Answer
verified

A stock index is

Correct Answer
verified

Correct Answer
verified
a.
A municipal bond.Municipal bonds gen...
View Answer

If Japan goes from a small budget deficit to a large budget deficit,it will reduce

Correct Answer
verified

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Correct Answer
verified

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Correct Answer
verified

If the demand for loanable funds shifts to the left,then the equilibrium interest rate

Correct Answer
verified

If the government currently has a budget deficit,then

Correct Answer
verified

Correct Answer
verified
a.
Presumably,when this happens,unless ...
View Answer

Exam 26: Saving,investment,and the Financial System

We associate the term debt finance with

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

As an alternative to selling shares of stock as a means of raising funds,a large company could,instead,

Correct AnswerverifiedShow Answer

What are the basic differences between bonds and stocks?

Correct AnswerverifiedA bond is a certificate of indebtedness ...View AnswerShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Long-term bonds are

Correct AnswerverifiedShow Answer

The sale of stocks

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

Which of the following would both make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

A stock index is

Correct AnswerverifiedShow Answer

Correct Answerverifieda. A municipal bond.Municipal bonds gen...View AnswerShow Answer

If Japan goes from a small budget deficit to a large budget deficit,it will reduce

Correct AnswerverifiedShow Answer

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Correct AnswerverifiedShow Answer

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts to the left,then the equilibrium interest rate

Correct AnswerverifiedShow Answer

If the government currently has a budget deficit,then

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Presumably,when this happens,unless ...View AnswerShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Private saving is Y ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
verified
a.
A municipal bond.Municipal bonds gen...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.
Presumably,when this happens,unless ...
View Answer