Question 1

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) None of the above
F) A) and D)

Question 2

In a closed economy, what remains after paying for consumption and government purchases is

Accepted Answer

A)   national disposable income.
B)   national saving.
C)   public saving.
D)   private saving.E) All of the above
F) None of the above

Question 3

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Accepted Answer

A)   both the government debt and interest rates increased between 2010 and 2011.
B)   both the government debt and interest rates decreased between 2010 and 2011.
C)   the government debt increased and interest rates decreased between 2010 and 2011.
D)   the government debt decreased and interest rates increased between 2010 and 2011.E) A) and B)
F) C) and D)

Question 4

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) None of the above
F) All of the above

Question 5

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)   the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.
B)   the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.
C)   both the demand for and supply of loanable funds are more elastic.
D)   both the demand for and supply of loanable funds are more inelastic.E) B) and C)
F) A) and C)

Question 6

Which of the following are effects of an increased budget deficit?

Accepted Answer

A)   the supply of loanable funds does not change; a higher interest rate reduces private saving
B)   the supply of loanable funds does not change; a higher interest rate raises private saving
C)   at any interest rate the supply of loanable funds is less; a higher interest rate reduces private saving
D)   at any interest rate the supply of loanable funds is less; a higher interest rate raises private savingE) B) and D)
F) A) and D)

Question 7

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Accepted Answer

municipal,...

Question 8

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

Question 9

In the language of macroeconomics, investment refers to

Accepted Answer

A)   saving.
B)   the purchase of new capital.
C)   the purchase of stocks, bonds, or mutual funds.
D)   All of the above are correct.E) A) and B)
F) B) and D)

Question 10

Which of the following is both a financial institution and a financial intermediary?

Accepted Answer

A)   banks
B)   stock exchanges
C)   the bond market
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 11

A checking deposit functions as

Accepted Answer

A)   a medium of exchange and as a store of value.
B)   a medium of exchange, but not as a store of value.
C)   a store of value, but not as a medium of exchange.
D)   neither a medium of exchange nor as a store of value.E) B) and C)
F) All of the above

Question 12

By definition, equity finance

Accepted Answer

A)   is accomplished when units of government sell bonds.
B)   is accomplished when firms sell bonds.
C)   is accomplished when firms sell shares of stock.
D)   involves "fair" interest rates or dividend yields.E) B) and D)
F) All of the above

Question 13

A mutual fund

Accepted Answer

A)   is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
B)   is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community.
C)   sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit.
D)   is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.E) None of the above
F) A) and D)

Question 14

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

Accepted Answer

A)   $1.5 trillion and $2.5 trillion, respectively
B)   $2.5 trillion and $1.5 trillion, respectively
C)   $2.5 trillion and $2.5 trillion, respectively
D)   $1.5 trillion and $1.5 trillion, respectivelyE) A) and D)
F) B) and D)

Question 15

Which of the following is true concerning interest rates on bonds?

Accepted Answer

A)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
B)   The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond lower than otherwise.
C)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
D)   The tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond lower than otherwise.E) C) and D)
F) A) and B)

Question 16

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Accepted Answer

A)   supply of loanable funds shifted to the right.
B)   supply of loanable funds shifted to the left.
C)   demand for loanable funds shifted to the right.
D)   demand for loanable funds shifted to the left.E) A) and D)
F) A) and B)

Question 17

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

Accepted Answer

A)   The supply of loanable funds would shift rightward and investment would increase.
B)   The supply of loanable funds would shift leftward and investment would decrease.
C)   The demand for loanable funds would shift rightward and investment would increase.
D)   The demand for loanable funds would shift leftward and investment would decrease.E) A) and B)
F) B) and C)

Question 18

Other things the same, which bond would you expect to pay the highest interest rate?

Accepted Answer

A)   a bond issued by the U.S. government
B)   a bond issued by Microsoft Corporation
C)   a bond issued by the state of Montana
D)   a bond issued by a new chain of Brazilian-style restaurantsE) None of the above
F) A) and C)

Question 19

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save more?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point F to Point A
C)   a movement from Point C to Point F
D)   a movement from Point B to Point CE) B) and D)
F) C) and D)

Question 20

A bond buyer is a

Accepted Answer

A)   saver. Long term bonds have less risk than short term bonds.
B)   saver. Long term bonds have more risk than short term bonds.
C)   borrower. Long term bonds have less risk than short term bonds.
D)   borrower. Long term bonds have more risk than short term bonds.E) None of the above
F) C) and D)

Exam 18: Saving, Investment, and the Financial System

A checking deposit functions as

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

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Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save more?

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For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

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In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

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A bond buyer is a

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A mutual fund

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In a closed economy, what remains after paying for consumption and government purchases is

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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?

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Which of the following is true concerning interest rates on bonds?

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Which of the following is both a financial institution and a financial intermediary?

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By definition, equity finance

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A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct AnswerverifiedShow Answer

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answerverifiedmunicipal,...View AnswerShow Answer

Other things the same, which bond would you expect to pay the highest interest rate?

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

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

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Which of the following are effects of an increased budget deficit?

Correct AnswerverifiedShow Answer

In the language of macroeconomics, investment refers to

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Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011. The loanable funds model would predict that, as a result of the increase in the surplus,

Correct AnswerverifiedShow Answer

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Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answer
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municipal,...
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