Question 1

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) A) and B)
F) All of the above

Question 2

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 3

If the supply of loanable funds shifts to the right, 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) A) and B)
F) None of the above

Question 4

In a closed economy, if Y and T remained the same, but G rose, and C fell but by less than the rise in G, what would happen to private and national saving?

Accepted Answer

A)   private and national saving would rise
B)   private and national saving would fall
C)   private saving would rise and national saving would fall
D)   private saving would fall and national saving would riseE) All of the above
F) C) and D)

Question 5

Which of the following statements is correct?

Accepted Answer

A)   The expected future profitability of a corporation influences the demand for that corporation's stock.
B)   When a corporation sells stock as a means of raising funds it is engaging in debt finance.
C)   The owners of bonds sold by the Microsoft Corporation are part owners of that corporation.
D)   All bonds are, by definition, perpetuities.E) A) and B)
F) None of the above

Question 6

Municipal bonds pay a relatively

Accepted Answer

A)   low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax.
B)   low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.
C)   high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay.
D)   high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.E) C) and D)
F) All of the above

Question 7

In a closed economy, what does (Y - T - C)  represent?

Accepted Answer

A)   national saving
B)   government tax revenue
C)   public saving
D)   private savingE) A) and C)
F) A) and D)

Question 8

A perpetuity is

Accepted Answer

A)   a financial intermediary that has existed throughout recorded history.
B)   an instrument of equity finance.
C)   a stock that pays dividends forever.
D)   a bond that pays interest forever.E) A) and B)
F) A) and D)

Question 9

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S.. Then

Accepted Answer

A)   the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
B)   the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
C)   the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
D)   the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.E) All of the above
F) A) and D)

Question 10

The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and what is the value of the goods and services purchased by the government of Yokovia?

Accepted Answer

A)   -$2 billion and $3 billion
B)   $1 billion and $3 billion
C)   -$1 billion and $4 billion
D)   There is not enough information to answer the question.E) A) and B)
F) B) and C)

Question 11

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Accepted Answer

A)   only ABC
B)   only JLG
C)   both ABC and JLG
D)   neither ABC nor JLGE) None of the above
F) All of the above

Question 12

A decrease in taxes on interest income would increase the interest rate.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
 
-Refer to Figure 8-3. Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point B to Point A
C)   a movement from Point A to Point F
D)   a movement from Point C to Point BE) B) and D)
F) All of the above

Question 14

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

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

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

The source of the supply of loanable funds

Accepted Answer

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

Question 17

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 18

Identify each of the following acts as representing either saving or investment.
a.Fred uses some of his income to buy government bonds.
b.Julie takes some of her income and buys mutual funds.
c.Alex purchases a new truck for his delivery business using borrowed funds.
d.Elaine uses some of her income to buy stock in a major corporation.
e.Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a.
Fred is saving.
b.
Julie is...

Question 19

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 20

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct Answer
verified
Market for...
View Answer

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

Correct Answer
verified

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Correct Answer
verified

In a closed economy, what does (Y - T - C) represent?

Correct Answer
verified

A perpetuity is

Correct Answer
verified

Correct Answer
verified

In a closed economy, if Y and T remained the same, but G rose, and C fell but by less than the rise in G, what would happen to private and national saving?

Correct Answer
verified

A decrease in taxes on interest income would increase the interest rate.

Correct Answer
verified

The source of the supply of loanable funds

Correct Answer
verified

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 8-3. Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Correct Answer
verified

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct Answer
verified

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S.. Then

Correct Answer
verified

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

Correct Answer
verified

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct Answer
verified

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Correct Answer
verified

Correct Answer
verified
a.
Fred is saving.
b.
Julie is...
View Answer

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct Answer
verified

Municipal bonds pay a relatively

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Correct AnswerverifiedShow Answer

In a closed economy, what does (Y - T - C) represent?

Correct AnswerverifiedShow Answer

A perpetuity is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In a closed economy, if Y and T remained the same, but G rose, and C fell but by less than the rise in G, what would happen to private and national saving?

Correct AnswerverifiedShow Answer

A decrease in taxes on interest income would increase the interest rate.

Correct AnswerverifiedShow Answer

The source of the supply of loanable funds

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 8-3. Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Correct AnswerverifiedShow Answer

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S.. Then

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct AnswerverifiedShow Answer

ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Fred is saving.b.Julie is...View AnswerShow Answer

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct AnswerverifiedShow Answer

Municipal bonds pay a relatively

Correct AnswerverifiedShow Answer

Correct Answer
verified
Market for...
View Answer

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a.
Fred is saving.
b.
Julie is...
View Answer

Correct Answer
verified

Correct Answer
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