Question 1

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Accepted Answer

the intere...

Question 2

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)   1,500, deficit
B)   1,500, surplus
C)   1,000, deficit
D)   1,000, surplusE) A) and B)
F) B) and C)

Question 3

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes reduce saving incentives,...

Question 4

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 D)

Question 5

If national saving in a closed economy is greater than zero, which of the following must be true?

Accepted Answer

A)   Either public saving or private saving must be greater than zero.
B)   Investment is positive.
C)   Y - C - G > 0.
D)   All of the above are correct.E) A) and C)
F) C) and D)

Question 6

Which of the following expressions must be equal to national saving for a closed economy?

Accepted Answer

A)   Y - I - G - NX
B)   Y - C - G
C)   Y - I - C
D)   G + C - YE) None of the above
F) All of the above

Question 7

Which of the following statements is correct?

Accepted Answer

A)   A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges.
B)   When a corporation sells bonds as a means of raising funds it is engaging in debt finance.
C)   A share of stock is an IOU.
D)   The two most important financial markets in the economy are the stock market and financial intermediaries.E) None of the above
F) All of the above

Question 8

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 9

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 10

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 11

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 12

How do banks make profits?

Accepted Answer

They charge borrower...

Question 13

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

Accepted Answer

A)   The government runs a larger deficit.
B)   The government institutes an investment tax credit.
C)   The government replaces the income tax with a consumption tax.
D)   None of the above is correct.E) All of the above
F) B) and D)

Question 14

A low price-earnings ratio 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) All of the above
F) A) and B)

Question 15

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)   New York Stock Exchange
B)   American Stock Exchange
C)   Chicago Mercantile Exchange
D)   NASDAQE) None of the above
F) B) and D)

Question 16

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Accepted Answer

A)   5.
B)   150.
C)   20.
D)   25.E) A) and D)
F) A) and C)

Question 17

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Accepted Answer

A)   the supply of loanable funds shifts rightward and the interest rate falls.
B)   the supply of loanable funds shifts leftward and the interest rate rises.
C)   the demand for loanable funds shifts leftward and the interest rate falls.
D)   the demand for loanable funds shifts rightward and the interest rate rises.E) A) and C)
F) A) and B)

Question 18

If there is shortage of loanable funds, then

Accepted Answer

A)   the supply for loanable funds shifts right and the demand shifts left.
B)   the supply for loanable funds shifts left and the demand shifts right.
C)   neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
D)   neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.E) A) and D)
F) A) and C)

Question 19

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 20

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) B) and C)
F) All of the above

Exam 18: Saving, Investment, and the Financial System

Which of the following is not an important stock exchange in the United States?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following expressions must be equal to national saving for a closed economy?

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

How do banks make profits?

Correct AnswerverifiedThey charge borrower...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Correct AnswerverifiedShow Answer

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Correct AnswerverifiedShow Answer

Camp Company had total earnings of $600 million in 2013, out of which it retained 20 percent for future investments. In 2013, its stock featured a dividend yield of 4 percent and 100 million shares were outstanding. The price-earnings ratio for Camp Company stock was

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Correct AnswerverifiedShow Answer

Most entrepreneurs finance their purchases of real capital using their past saving.

Correct AnswerverifiedShow Answer

If there is shortage of loanable funds, then

Correct AnswerverifiedShow Answer

A low price-earnings ratio indicates that either the stock is

Correct AnswerverifiedShow Answer

If national saving in a closed economy is greater than zero, which of the following must be true?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Correct AnswerverifiedShow Answer

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Correct AnswerverifiedShow 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

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Correct Answerverifiedthe intere...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

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They charge borrower...
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Correct Answer
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When tax code changes reduce saving incentives, the interest rate will _ and investment will _.

Correct Answer
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the intere...
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Correct Answer
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