Question 1

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Accepted Answer

A)  Both Altas' sound finances and the long term of the bond.
B)  Atlas' sound finances but not the long term of the bond.
C)  The long term of the bond but not Atlas' sound finances.
D)  Neither Atlas' sound finances nor the long term of the bond.E) B) and C)
F) None of the above

Question 2

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

Accepted Answer

A)  Interest rates would rise.
B)  Interest rates would be unaffected.
C)  Interest rates would fall.
D)  The effect on the interest rate is uncertain.E) All of the above
F) A) and B)

Question 3

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

Accepted Answer

A)  The economy has no government.
B)  The economy's government is running a budget deficit.
C)  The economy's government is running a budget surplus.
D)  No restriction is necessary; investment and private saving are equal for all closed economies.E) All of the above
F) A) and D)

Question 4

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Accepted Answer

the intere...

Question 5

In national income accounting, we use which of the following pairs of terms interchangeably?

Accepted Answer

A)  "investment" and "private saving"
B)  "investment" and "purchases of stocks and bonds"
C)  "saving" and "national saving"
D)  "public saving" and "government tax revenue minus government spending"E) A) and C)
F) A) and D)

Question 6

Alpha Corporation has a price of $5 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 which is

Accepted Answer

A)  high, perhaps indicating that people expect future earnings to rise.
B)  high, perhaps indicating that people expect future earnings to fall.
C)  low, perhaps indicating that people expect future earnings to rise.
D)  low, perhaps indicating that people expect future earnings to fall.E) A) and B)
F) A) and D)

Question 7

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run.

Accepted Answer

A) True 
 B)False

Question 8

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Accepted Answer

A saver earns more than he spe...

Question 9

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 D)
F) C) and D)

Question 10

Use the following table to answer the following questions.
Table 26-2 
-Refer to Table 26-2. Which company had the lowest earnings per share?

Accepted Answer

A)  Boeing Co.
B)  Eli Lilly and Co.
C)  Kraft
D)  Kellogg Co.E) All of the above
F) None of the above

Question 11

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Accepted Answer

Investment spending ...

Question 12

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Accepted Answer

A)  the demand for this company's stock to decrease, so the price would rise.
B)  the demand for this company's stock to decrease, so the price would fall.
C)  the supply of this company's stock to decrease, so the price would fall.
D)  the supply of this company's stock to decrease, so the price would rise.E) B) and C)
F) A) and B)

Question 13

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Accepted Answer

A)  the supply of loanable funds shifts rightward and the interest rate falls.
B)  the supply of loanable funds shifts leftward and the interest rate rises.
C)  the demand for loanable funds shifts leftward and the interest rate falls.
D)  the demand for loanable funds shifts rightward and the interest rate rises.E) B) and D)
F) None of the above

Question 14

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)  credit risk.
B)  interest risk.
C)  term risk.
D)  private risk.E) All of the above
F) A) and B)

Question 15

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

Question 16

Which of the following would both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it is long term
B)  the interest it pays is taxed and it is short term
C)  the interest it pays is tax exempt and it is long term
D)  the interest it pays is tax exempt and it is short termE) B) and C)
F) All of the above

Question 17

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)  -500
B)  500
C)  2,000
D)  None of the above is correct.E) A) and C)
F) C) and D)

Question 18

​The nominal interest rate increases by 5 percent. What is the effect on investment?

Accepted Answer

A)  The real interest rate increases and investment increases
B)  ​The real interest rate decreases and investment decreases.
C)  ​The real interest rate increases and investment decreases.
D)  ​Cannot be determined from the given informationE) B) and C)
F) B) and D)

Question 19

If there is a shortage 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) B) and C)

Question 20

A _____ is a certificate of indebtedness and a _____ is a claim to partial ownership in a firm.

Accepted Answer

The answer of A _____ is a certificate of indebtedness...

Exam 26: Saving, Investment, and the Financial System

Which of the following would both make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Correct AnswerverifiedShow Answer

Suppose a country has a larger increase in debt in 2014 than it had in 2013. Then other things the same,

Correct AnswerverifiedShow Answer

In national income accounting, we use which of the following pairs of terms interchangeably?

Correct AnswerverifiedShow Answer

A bond buyer is a

Correct AnswerverifiedShow Answer

Alpha Corporation has a price of $5 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 which is

Correct AnswerverifiedShow Answer

What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of loanable funds curve or the demand for loanable funds curve?

Correct AnswerverifiedInvestment spending ...View AnswerShow Answer

A checking deposit functions as

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A _____ is a certificate of indebtedness and a _____ is a claim to partial ownership in a firm.

Correct AnswerverifiedShow Answer

In the terminology of macroeconomics, what's the difference between a saver and an investor?

Correct AnswerverifiedA saver earns more than he spe...View AnswerShow Answer

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

Correct AnswerverifiedShow Answer

​The nominal interest rate increases by 5 percent. What is the effect on investment?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Correct AnswerverifiedShow Answer

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Correct AnswerverifiedShow Answer

Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause

Correct AnswerverifiedShow Answer

If there is a shortage of loanable funds, then

Correct AnswerverifiedShow Answer

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

Correct Answerverifiedthe intere...View AnswerShow Answer

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run.

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest earnings per share?

Correct AnswerverifiedShow Answer

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Investment spending ...
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A _ is a certificate of indebtedness and a _ is a claim to partial ownership in a firm.

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A saver earns more than he spe...
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The nominal interest rate increases by 5 percent. What is the effect on investment?

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the intere...
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