Question 1

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A)   the interest rate and investment would rise.
B)   the interest rate would rise and investment would fall.
C)   the interest rate would fall and investment would rise.
D)   the interest rate and investment would fall.E) C) and D)
F) A) and B)

Question 2

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

Question 3

A low P/E for a stock indicates that

Accepted Answer

A)   people may expect earnings to fall in the future, perhaps because the firm will be faced with increased competition.
B)   its dividends have been low so that no one is willing to pay very much for it.
C)   the corporation is possibly overvalued.
D)   All of the above are correct.E) None of the above
F) B) and C)

Question 4

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 B)
F) A) and C)

Question 5

A stock index is

Accepted Answer

A)   an average of a group of stock prices.
B)   an average of a group of stock yields.
C)   a measure of the risk relative to the profitability of corporations.
D)   a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.E) All of the above
F) None of the above

Question 6

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Accepted Answer

The supply of loanable funds w...

Question 7

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 8

Which of the following equations represents GDP for a closed economy?

Accepted Answer

A)   Y = C + I + G + T
B)   S = I - G
C)   I = Y - C + G
D)   Y = C + I + GE) All of the above
F) B) and C)

Question 9

An increase in the quantity of loanable funds traded means that

Accepted Answer

A)   firms are borrowing less and investment decreases.
B)   firms are borrowing less and investment increases.
C)   firms are borrowing more and investment increases.
D)   firms are borrowing more and investment decreases.E) B) and C)
F) A) and D)

Question 10

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Accepted Answer

A) True 
 B)False

Question 11

Table 26-1 
-Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Accepted Answer

A)   GenMills
B)   Microsoft
C)   Graco
D)   HersheyE) None of the above
F) A) and D)

Question 12

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Accepted Answer

A)   demand funds from the financial system by buying bonds.
B)   demand funds from the financial system by selling bonds.
C)   supply funds to the financial system by buying bonds.
D)   supply funds to the financial system by selling bonds.E) All of the above
F) A) and B)

Question 13

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 14

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 C)
F) None of the above

Question 15

In which case would people desire to borrow the most?

Accepted Answer

A)   the nominal interest rate is 8% and the inflation rate is 7%
B)   the nominal interest rate is 7% and the inflation rate is 5%
C)   the nominal interest rate is 6% and the inflation rate is 3%
D)   the nominal interest rate is 5% and the inflation rate is 1%E) B) and D)
F) B) and C)

Question 16

The economy's two most important financial markets are

Accepted Answer

A)   the investment market and the saving market.
B)   the bond market and the stock market.
C)   banks and the stock market.
D)   financial markets and financial institutions.E) C) and D)
F) A) and B)

Question 17

Which of the following bonds has the highest interest rate?

Accepted Answer

A)   a high credit risk and a short term.
B)   a low credit risk and a short term.
C)   a long term and a high credit risk.
D)   a long term and a low credit risk.E) All of the above
F) B) and D)

Question 18

Profits not paid out to stockholders are

Accepted Answer

A)   retained earnings.
B)   known as dividends.
C)   the denominator in the price-earnings ratio.
D)   All of the above are correct.E) A) and B)
F) C) and D)

Question 19

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

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

Question 20

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Accepted Answer

deficit, i...

Exam 26: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Correct AnswerverifiedThe supply of loanable funds w...View AnswerShow Answer

Other things the same, corporate bonds generally feature higher interest rates than U.S. government bonds.

Correct AnswerverifiedShow Answer

Table 26-1 -Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Correct AnswerverifiedShow Answer

By definition, government purchases and taxes are zero for a closed economy.

Correct AnswerverifiedShow Answer

Which of the following equations represents GDP for a closed economy?

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average has been computed regularly since

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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

The economy's two most important financial markets are

Correct AnswerverifiedShow Answer

In which case would people desire to borrow the most?

Correct AnswerverifiedShow Answer

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Correct AnswerverifiedShow Answer

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Correct AnswerverifiedShow Answer

An increase in the quantity of loanable funds traded means that

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following bonds has the highest interest rate?

Correct AnswerverifiedShow Answer

A stock index is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A low P/E for a stock indicates that

Correct AnswerverifiedShow Answer

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

Correct Answerverifieddeficit, i...View AnswerShow Answer

Profits not paid out to stockholders are

Correct AnswerverifiedShow Answer

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The supply of loanable funds w...
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When the government increases its borrowing, the budget ___ increases and government debt _. The resulting change in investment due to this increased government borrowing is called ___.

Correct Answer
verified
deficit, i...
View Answer

Correct Answer
verified