Question 1

Which bond is likely to have higher interest rate due to a higher default risk?

Accepted Answer

A)   A share of stock issued by Apple.
B)   A corporate bond issued by Apple.
C)   A junk bond.
D)   A U.S. government bond.E) C) and D)
F) B) and D)

Question 2

Which of the following statements is correct?

Accepted Answer

A)   A large, well-known corporation such as Intel generally would use financial intermediation to finance expansion of its facilities.
B)   On average, managed funds outperform indexed funds.
C)   Unlike corporate bonds and stocks, checking accounts are a medium of exchange.
D)   A mutual fund is a financial market.E) A) and D)
F) All of the above

Question 3

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Accepted Answer

A)   only Jim's
B)   only ABC Corporation's
C)   Jim's and ABC Corporation's
D)   neither Jim's nor ABC Corporation'sE) A) and C)
F) All of the above

Question 4

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 5

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Accepted Answer

The answer of Bond A and Bond B are identical...

Question 6

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)   the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)   the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)   the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)   the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.E) A) and D)
F) A) and C)

Question 7

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)   a larger investment tax credit
B)   an expansion of eligibility for Individual Retirement Accounts
C)   an increase in income-tax rates, with no change in the government budget deficit or surplus
D)   an increase in government purchases, with no change in taxesE) None of the above
F) A) and D)

Question 8

A closed economy does not engage in international trade, therefore

Accepted Answer

A)   national saving is less than investment S 
B)   net exports NX)  are zero.
C)   Y - C - G > I.
D)   national saving is zero.E) C) and D)
F) B) and D)

Question 9

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

A)   30 major U.S. corporations.
B)   100 major U.S. corporations.
C)   500 representative U.S. corporations.
D)   1,000 representative U.S. corporations.E) C) and D)
F) All of the above

Question 10

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

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

Question 11

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

A)   raise the demand for existing shares of the stock, causing the price to rise
B)   decrease the demand for existing shares of the stock, causing the price to fall
C)   raise the supply of the existing shares of stock, causing the price to rise
D)   raise the supply of the existing shares of stock, causing the price to fallE) A) and C)
F) All of the above

Question 12

A policy that induces people to save more shifts

Accepted Answer

A)   the supply of loanable funds and raises interest rates.
B)   the supply of loanable funds and reduces interest rates.
C)   the demand for loanable funds and raises interest rates.
D)   the demand for loanable funds and reduces interest rates.E) A) and C)
F) A) and B)

Question 13

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

Accepted Answer

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

Question 14

Y = C + I + G + NX is an identity because

Accepted Answer

A)   each symbol identifies a macroeconomic variable.
B)   the right-hand and left-hand sides are equal when an equilibrium is reached.
C)   the equality holds due to the way the variables are defined.
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 15

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)   increased both interest rates and investment.
B)   increased interest rates and decreased investment.
C)   decreased interest rates and increased investment.
D)   decreased both interest rates and investment.E) B) and C)
F) B) and D)

Question 16

Stock represents

Accepted Answer

A)   a claim to a share of the profits of a firm.
B)   ownership in a firm.
C)   equity finance.
D)   All of the above are correctE) A) and D)
F) A) and B)

Question 17

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 18

Compared to bondholders, stockholders

Accepted Answer

A)   face higher risk and have the potential for higher returns.
B)   face higher risk but receive a fixed payment.
C)   face lower risk and have the potential for higher returns.
D)   face lower risk but receive a fixed payment.E) B) and D)
F) A) and B)

Question 19

Public saving is equal to national saving minus private saving.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 13: Saving, Investment, and the Financial System

What is the source of the supply of loanable funds?

Correct AnswerverifiedShow Answer

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average is now based on the prices of the stocks of

Correct AnswerverifiedShow Answer

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Correct AnswerverifiedShow Answer

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

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

Which bond is likely to have higher interest rate due to a higher default risk?

Correct AnswerverifiedShow Answer

Stock represents

Correct AnswerverifiedShow Answer

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Correct AnswerverifiedShow Answer

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

A closed economy does not engage in international trade, therefore

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

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

Correct AnswerverifiedShow Answer

Public saving is equal to national saving minus private saving.

Correct AnswerverifiedShow Answer

Y = C + I + G + NX is an identity because

Correct AnswerverifiedShow Answer

Compared to bondholders, stockholders

Correct AnswerverifiedShow Answer

A policy that induces people to save more shifts

Correct AnswerverifiedShow Answer

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

Correct AnswerverifiedShow Answer

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Correct AnswerverifiedShow Answer

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There is a...
View Answer

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