Question 1

Queen City Sausage stock is selling at $40 per share. It has retained earnings of $2.00 per share, and dividends of $0.50 per share. What is the price-earnings ratio?

Accepted Answer

A)  100
B)  20
C)  16
D)  0.06E) C) and D)
F) A) and D)

Question 2

PacknCamp Corporation has a price of $50, has issued 2 000 000 shares, has increased its cumulated retained earnings by $2 million, and has a dividend yield of 2 percent. What is the price-earnings ratio of PacknCamp?

Accepted Answer

A)  50, which is high compared to historical standards of the market
B)  50, which is low compared to historical standards of the market
C)  25, which is low compared to historical standards of the market
D)  25, which is high compared to historical standards of the marketE) A) and B)
F) A) and C)

Question 3

Suppose a poor country decides to institute an investment tax credit. As a result, which of the following is most likely to happen?

Accepted Answer

A)  Interest rates would rise, and investment would fall.
B)  Interest rates would fall, and investment would rise.
C)  Both interest rates and investment would fall.
D)  Both interest rates and investment would rise.E) B) and C)
F) A) and C)

Question 4

Suppose Parliament instituted an investment tax credit. Which of the following would most likely happen in the market for loanable funds?

Accepted Answer

A)  The interest rate and investment would both fall.
B)  The interest rate and investment would both rise.
C)  The interest rate would rise, and investment would fall.
D)  The interest rate would fall; therefore, investment would rise.E) A) and B)
F) A) and C)

Question 5

Which of the following best describes the pattern in the returns of index funds?

Accepted Answer

A)  They typically have about the same rate of return as more actively managed funds.
B)  They typically have lower rates of return than more actively managed funds.
C)  There is no pattern; they may have either higher or lower rates than more actively managed funds.
D)  They typically have higher rates of return than more actively managed funds.E) All of the above
F) A) and B)

Question 6

Which of the following best defines financial intermediaries?

Accepted Answer

A)  They are the same as financial markets.
B)  They are individuals who make a profit by buying a stock low and selling it high.
C)  They are a more general name for financial assets, such as stocks, bonds, and chequing accounts.
D)  They are financial institutions through which savers can indirectly provide funds to borrowers.E) B) and D)
F) A) and C)

Question 7

What does a high price-earnings ratio indicate?

Accepted Answer

A)  Either the stock is undervalued or people have become more optimistic about the corporation's prospects.
B)  Either the stock is overvalued or people have become more optimistic about the corporation's prospects.
C)  Either the stock is overvalued or people have become less optimistic about the corporation's prospects.
D)  Either the stock is undervalued or people have become less optimistic about the corporation's prospects.E) C) and D)
F) B) and C)

Question 8

Fred is considering expanding his dress shop. Which of the following will happen if interest rates rise?

Accepted Answer

A)  He is less likely to expand. This illustrates why the supply of loanable funds slopes downward.
B)  He is more likely to expand. This illustrates why the supply of loanable funds slopes upward.
C)  He is less likely to expand. This illustrates why the demand for loanable funds slopes downward.
D)  He is more likely to expand. This illustrates why the demand for loanable funds slopes upward.E) C) and D)
F) B) and D)

Question 9

When is a budget surplus created?

Accepted Answer

A)  when the government sells more bonds than it buys back
B)  when the government spends more than it receives in tax revenue
C)  when private savings are greater than zero
D)  when the government spends less than the tax revenueE) A) and B)
F) A) and C)

Question 10

Which of the following does stock represent?

Accepted Answer

A)  certificate of insurance
B)  mortgage
C)  ownership in a company
D)  debt financeE) A) and C)
F) A) and B)

Question 11

In the language of macroeconomics, what does "investment" refer to?

Accepted Answer

A)  saving
B)  the purchase of new capital
C)  the purchase of stocks, bonds, or mutual funds
D)  the purchase of durable goodsE) C) and D)
F) All of the above

Question 12

Which of the following terms refers to the profits paid out to shareholders?

Accepted Answer

A)  retained earnings
B)  dividends
C)  interest
D)  sharesE) B) and D)
F) None of the above

Question 13

Table 8-2.
 
-Refer to Table 8-2. Which company had the highest earnings per share?

Accepted Answer

A)  Boeing Co.
B)  Eli Lily and Co.
C)  H.J. Heinz and Co.
D)  Kellogg Co.E) A) and D)
F) All of the above

Question 14

Most entrepreneurs finance their purchases of real capital using their past saving.

Accepted Answer

A) True 
 B)False

Question 15

When the government runs a budget deficit, which of the following is most likely to happen?

Accepted Answer

A)  Interest rates become lower than they would be otherwise.
B)  National saving gets higher than it would be otherwise.
C)  Investment gets lower than it would be otherwise.
D)  Government debt decreases by the amount of the deficit.E) A) and D)
F) All of the above

Question 16

Public saving is T - G, while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 17

Other things being constant, when a business issues more stock, which of the following happens?

Accepted Answer

A)  The supply of the stock is greater and thus the price will fall.
B)  The supply of the stock is less and thus the price will rise.
C)  The demand for the stock is greater and thus the price will rise.
D)  The demand for the stock is less and thus the price will fall.E) B) and C)
F) C) and D)

Question 18

The country of Nemedia does not trade with any other country. Its GDP is $20 billion. Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments. Consumption equals $15 billion, and investment equals $2 billion. What is the value of the goods and services purchased by the government of Nemedia?

Accepted Answer

A)  $3 billion
B)  $5 billion
C)  $17billion
D)  There is not enough information to answer the question.E) All of the above
F) A) and D)

Question 19

Henry buys a bond issued by Ralston Purina, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Accepted Answer

A)  Henry and Ralston Purina are both investing.
B)  Henry and Ralston Purina are both saving.
C)  Henry is investing; Ralston Purina is saving.
D)  Henry is saving; Ralston Purina is investing.E) B) and D)
F) C) and D)

Question 20

Consider a closed economy. Use the supply and demand for loanable funds model to predict the effects of the following events on interest rates and investment.
a.The government introduces a tax credit for savings accounts of up to $5000 per year.
b.The government introduces a tax credit for savings accounts of up to $5000 per year, and at the same time it repeals an investment tax exemption provision.
c.The government raises the tax rates.
d.The government issues bonds worth $10 billion.

Accepted Answer

a.Since saving is now less taxed, one wo...

Exam 8: Saving, Investment, and the Financial System

Which of the following terms refers to the profits paid out to shareholders?

Correct Answer
verified

Suppose a poor country decides to institute an investment tax credit. As a result, which of the following is most likely to happen?

Correct Answer
verified

Public saving is T - G, while private saving is Y - T - C.

Correct Answer
verified

Most entrepreneurs finance their purchases of real capital using their past saving.

Correct Answer
verified

Other things being constant, when a business issues more stock, which of the following happens?

Correct Answer
verified

Which of the following best defines financial intermediaries?

Correct Answer
verified

Fred is considering expanding his dress shop. Which of the following will happen if interest rates rise?

Correct Answer
verified

Suppose Parliament instituted an investment tax credit. Which of the following would most likely happen in the market for loanable funds?

Correct Answer
verified

Which of the following best describes the pattern in the returns of index funds?

Correct Answer
verified

Which of the following does stock represent?

Correct Answer
verified

When the government runs a budget deficit, which of the following is most likely to happen?

Correct Answer
verified

Queen City Sausage stock is selling at $40 per share. It has retained earnings of $2.00 per share, and dividends of $0.50 per share. What is the price-earnings ratio?

Correct Answer
verified

Correct Answer
verified
a.Since saving is now less taxed, one wo...
View Answer

PacknCamp Corporation has a price of $50, has issued 2 000 000 shares, has increased its cumulated retained earnings by $2 million, and has a dividend yield of 2 percent. What is the price-earnings ratio of PacknCamp?

Correct Answer
verified

Table 8-2. -Refer to Table 8-2. Which company had the highest earnings per share?

Correct Answer
verified

Correct Answer
verified

Henry buys a bond issued by Ralston Purina, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Correct Answer
verified

In the language of macroeconomics, what does "investment" refer to?

Correct Answer
verified

When is a budget surplus created?

Correct Answer
verified

What does a high price-earnings ratio indicate?

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Which of the following terms refers to the profits paid out to shareholders?

Correct AnswerverifiedShow Answer

Suppose a poor country decides to institute an investment tax credit. As a result, which of the following is most likely to happen?

Correct AnswerverifiedShow Answer

Public saving is T - G, while private saving is Y - T - C.

Correct AnswerverifiedShow Answer

Most entrepreneurs finance their purchases of real capital using their past saving.

Correct AnswerverifiedShow Answer

Other things being constant, when a business issues more stock, which of the following happens?

Correct AnswerverifiedShow Answer

Which of the following best defines financial intermediaries?

Correct AnswerverifiedShow Answer

Fred is considering expanding his dress shop. Which of the following will happen if interest rates rise?

Correct AnswerverifiedShow Answer

Suppose Parliament instituted an investment tax credit. Which of the following would most likely happen in the market for loanable funds?

Correct AnswerverifiedShow Answer

Which of the following best describes the pattern in the returns of index funds?

Correct AnswerverifiedShow Answer

Which of the following does stock represent?

Correct AnswerverifiedShow Answer

When the government runs a budget deficit, which of the following is most likely to happen?

Correct AnswerverifiedShow Answer

Queen City Sausage stock is selling at $40 per share. It has retained earnings of $2.00 per share, and dividends of $0.50 per share. What is the price-earnings ratio?

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Since saving is now less taxed, one wo...View AnswerShow Answer

PacknCamp Corporation has a price of $50, has issued 2 000 000 shares, has increased its cumulated retained earnings by $2 million, and has a dividend yield of 2 percent. What is the price-earnings ratio of PacknCamp?

Correct AnswerverifiedShow Answer

Table 8-2. -Refer to Table 8-2. Which company had the highest earnings per share?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Henry buys a bond issued by Ralston Purina, which uses the funds to buy new machinery for one of its factories. Who is investing and who is saving?

Correct AnswerverifiedShow Answer

In the language of macroeconomics, what does "investment" refer to?

Correct AnswerverifiedShow Answer

When is a budget surplus created?

Correct AnswerverifiedShow Answer

What does a high price-earnings ratio indicate?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
a.Since saving is now less taxed, one wo...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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