Question 1

Which of the following is correct?

Accepted Answer

A)   In a closed economy, equilibrium in the market for loanable funds occurs where saving = investment.
B)   Investment is the source for the supply of loanable funds.
C)   If there is a surplus in the market for loanable funds, the interest rate rises.
D)   All of the above are correctE) A) and B)
F) A) and C)

Question 2

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) All of the above
F) None of the above

Question 3

Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion.
-Refer to Scenario 26-2. For this economy, national saving is equal to

Accepted Answer

A)   $1.1 trillion.
B)   $2.9 trillion.
C)   $1.2 trillion.
D)   $1.7 trillion.E) All of the above
F) B) and D)

Question 4

The supply of loanable funds slopes

Accepted Answer

A)   upward because an increase in the interest rate induces people to save more.
B)   downward because an increase in the interest rate induces people to save less.
C)   downward because an increase in the interest rate induces people to invest less.
D)   upward because an increase in the interest rate induces people to invest more.E) B) and D)
F) All of the above

Question 5

Stocks and bonds

Accepted Answer

A)   and checking accounts are all stores of value and commonly function as mediums of exchange.
B)   and checking accounts are all stores of value, but only stocks and bonds commonly function as mediums of exchange.
C)   and checking accounts are all stores of value, but only checking accounts commonly function as mediums of exchange.
D)   and checking accounts all commonly function as mediums of exchange, but only stocks and bonds are a store of value.E) A) and C)
F) C) and D)

Question 6

If there is a surplus of loanable funds, then

Accepted Answer

A)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
B)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
C)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
D)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.E) All of the above
F) A) and B)

Question 7

If the demand for loanable funds shifts to the right, 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) B) and C)
F) C) and D)

Question 8

Which of the following statements is correct?

Accepted Answer

A)   NASDAQ is an important stock exchange in the United States.
B)   The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future.
C)   Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations.
D)   All of the above are correct.E) B) and D)
F) C) and D)

Question 9

Other things the same, a government budget deficit

Accepted Answer

A)   reduces public saving, but not national saving.
B)   reduces national saving, but not public saving.
C)   reduces both public and national saving.
D)   reduces neither public saving nor national saving.E) A) and B)
F) B) and C)

Question 10

In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

Accepted Answer

A)   national saving would fall and private saving would rise
B)   national saving would rise and private saving would fall
C)   both national saving and private saving would fall
D)   None of the above is correct.E) None of the above
F) All of the above

Question 11

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) A) and D)
F) All of the above

Question 12

The interest rate will and the quantity of loanable funds invested will when the government decreases the budget deficit.

Accepted Answer

The answer of The interest rate will and the quantity...

Question 13

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 C)
F) None of the above

Question 14

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. For this economy, investment amounts to

Accepted Answer

A)   $38,000.
B)   $18,000.
C)   $12,000.
D)   $15,000.E) All of the above
F) B) and C)

Question 15

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. 
-Refer to Table 26-3. Determine the quantity of private saving.

Accepted Answer

A)   $0.2 trillion
B)   $1.6 trillion
C)   $1.8 trillion
D)   $2.6 trillionE) B) and C)
F) A) and C)

Question 16

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Accepted Answer

Private saving is $550 billion...

Question 17

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 18

The income that households have left after paying their taxes and paying for their consumption is known as .

Accepted Answer

The answer of The income that households have left after...

Question 19

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)   the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)   Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston.
C)   Bond A has a term of 20 years and Bond B has a term of 2 years.
D)   All of the above are correct.E) A) and B)
F) B) and C)

Question 20

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) B) and C)
F) C) and D)

Exam 26: Saving, Investment, and the Financial System

The interest rate will and the quantity of loanable funds invested will when the government decreases the budget deficit.

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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

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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

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The supply of loanable funds slopes

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Which of the following is correct?

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Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. For this economy, national saving is equal to

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By definition, equity finance

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The income that households have left after paying their taxes and paying for their consumption is known as .

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In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Correct AnswerverifiedPrivate saving is $550 billion...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. Which of the following movements shows the effects of households' decision to save more?

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Which of the following statements is correct?

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If the demand for loanable funds shifts to the right, then the equilibrium interest rate

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If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

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The assumption of a closed economy

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Stocks and bonds

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Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

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In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than the increase in T, what would happen to private and national saving?

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Other things the same, a government budget deficit

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Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. -Refer to Table 26-3. Determine the quantity of private saving.

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If there is a surplus of loanable funds, then

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Private saving is $550 billion...
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