Question 1

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Accepted Answer

A)   retained earnings.
B)   dividends.
C)   interest payments.
D)   capital accounts.E) None of the above
F) A) and B)

Question 2

What variable adjusts to balance demand and supply in the market for loanable funds?

Accepted Answer

The real i...

Question 3

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Accepted Answer

A)   50, which is high by historical standards.
B)   50, which is low by historical standards.
C)   25, which is high by historical standards.
D)   25, which is low by historical standards.E) A) and B)
F) None of the above

Question 4

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Accepted Answer

A)   9.0 percent
B)   5 percent
C)   3.5 percent
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 5

Which of the following statements about mutual funds is correct?

Accepted Answer

A)   A mutual fund is a financial intermediary.
B)   A mutual fund acquires its funds primarily by selling shares to the public.
C)   People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio.
D)   All of the above are correct.E) All of the above
F) A) and D)

Question 6

Short-term bonds are generally

Accepted Answer

A)   less risky than long-term bonds and so they feature higher interest rates.
B)   less risky than long-term bonds and so they feature lower interest rates.
C)   more risky than long-term bonds and so they feature higher interest rates.
D)   more risky than long-term bonds and so they feature lower interest rates.E) A) and D)
F) B) and D)

Question 7

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Accepted Answer

A)   the market for loanable funds is in equilibrium.
B)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise.
C)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.
D)   the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.E) B) and C)
F) A) and D)

Question 8

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

A)   1976.
B)   1948.
C)   1913.
D)   1896.E) B) and C)
F) B) and D)

Question 9

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Accepted Answer

A)   Kroger's plans to use equity financing and its action is part of the demand for loanable funds.
B)   Kroger's plans to use equity financing and its action is part of the supply of loanable funds.
C)   Kroger's plans to use debt financing and its action is part of the demand for loanable funds.
D)   Kroger's plans to use debt financing and its action is part of the supply of loanable funds.E) A) and B)
F) A) and C)

Question 10

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)   Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
B)   Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
C)   Bond A has a term of 1 year and Bond B has a term of 5 years.
D)   All of the above are correct.E) A) and D)
F) C) and D)

Question 11

Banks and mutual funds are examples of financial markets.

Accepted Answer

A) True 
 B)False

Question 12

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

Accepted Answer

A)   The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower.
B)   The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher.
C)   Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone.
D)   Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.E) A) and B)
F) A) and C)

Question 13

The identity that shows that total income and total expenditure are equal is

Accepted Answer

A)   GDP = Y.
B)   Y = DI + T + NX.
C)   GDP = GNP - NX.
D)   Y = C + I + G + NX.E) B) and D)
F) B) and C)

Question 14

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

There is a...

Question 15

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

A)   C
B)   I
C)   G
D)   None of the above are correct.E) A) and C)
F) B) and C)

Question 16

Institutions that help to match one person's saving with another person's investment are collectively called the

Accepted Answer

A)   Federal Reserve system.
B)   banking system.
C)   monetary system.
D)   financial system.E) A) and B)
F) A) and C)

Question 17

The assumption of a closed economy

Accepted Answer

A)   applies to the world economy.
B)   applies to most national economies.
C)   requires us to assume that the government's budget is always balanced.
D)   All of the above are correct.E) C) and D)
F) None of the above

Question 18

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called

Accepted Answer

A)   an increase in the supply of loanable funds.
B)   an increase in the quantity of loanable funds supplied.
C)   a decrease in the supply of loanable funds.
D)   a decrease in the quantity of loanable funds supplied.E) None of the above
F) All of the above

Question 19

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Accepted Answer

A)   11 percent.
B)   approximately 6 percent.
C)   between 6 percent and 8 percent.
D)   between 11 percent and 13 percent.E) A) and B)
F) All of the above

Question 20

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Exam 18: Saving, Investment, and the Financial System

Banks and mutual funds are examples of financial markets.

Correct Answer
verified

The assumption of a closed economy

Correct Answer
verified

What variable adjusts to balance demand and supply in the market for loanable funds?

Correct Answer
verified
The real i...
View Answer

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Correct Answer
verified

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Correct Answer
verified

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Correct Answer
verified

Short-term bonds are generally

Correct Answer
verified

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Correct Answer
verified
There is a...
View Answer

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called

Correct Answer
verified

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct Answer
verified

Which of the following statements about mutual funds is correct?

Correct Answer
verified

Correct Answer
verified

The identity that shows that total income and total expenditure are equal is

Correct Answer
verified

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Correct Answer
verified

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Correct Answer
verified

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Correct Answer
verified

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct Answer
verified

The Dow Jones Industrial Average has been computed regularly since

Correct Answer
verified

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct Answer
verified

Financial crises seldom involve economic downturns.

Correct Answer
verified

Exam 18: Saving, Investment, and the Financial System

Banks and mutual funds are examples of financial markets.

Correct AnswerverifiedShow Answer

The assumption of a closed economy

Correct AnswerverifiedShow Answer

What variable adjusts to balance demand and supply in the market for loanable funds?

Correct AnswerverifiedThe real i...View AnswerShow Answer

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $100,000 and the quantity of loanable funds supplied is $100,000. Currently, the nominal interest rate is 6 percent and the inflation rate is 2 percent. Currently,

Correct AnswerverifiedShow Answer

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Correct AnswerverifiedShow Answer

All or part of a firm's profits may be paid out to the firm's stockholders in the form of

Correct AnswerverifiedShow Answer

Short-term bonds are generally

Correct AnswerverifiedShow Answer

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Correct AnswerverifiedThere is a...View AnswerShow Answer

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called

Correct AnswerverifiedShow Answer

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct AnswerverifiedShow Answer

Which of the following statements about mutual funds is correct?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The identity that shows that total income and total expenditure are equal is

Correct AnswerverifiedShow Answer

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Correct AnswerverifiedShow Answer

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Correct AnswerverifiedShow Answer

Ethan purchases a new house for $170,000. Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average has been computed regularly since

Correct AnswerverifiedShow Answer

Institutions that help to match one person's saving with another person's investment are collectively called the

Correct AnswerverifiedShow Answer

Financial crises seldom involve economic downturns.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The real i...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
There is a...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified