Question 1

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Accepted Answer

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Question 2

The purchase of a new house is the one form of

Accepted Answer

A)   investment that is financed by private saving rather than public saving.
B)   household spending that is not counted as part of investment in the national income accounts.
C)   household spending that is investment rather than consumption.
D)   household spending that does not contribute to GDP.E) A) and D)
F) None of the above

Question 3

In a closed economy, national saving is

Accepted Answer

A)   usually greater than investment.
B)   equal to investment.
C)   usually less than investment because of the leakage of taxes.
D)   always less than investment.E) A) and C)
F) All of the above

Question 4

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Accepted Answer

A)   private saving = $10,000 and GDP = $55,000.
B)   private saving = $10,000 and GDP = $63,000.
C)   private saving = $12,000 and GDP = $67,000.
D)   private saving = $12,000 and GDP = $69,000.E) A) and B)
F) C) and D)

Question 5

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Accepted Answer

A)   $5 billion and $45 billion
B)   -$5 billion and $45 billion
C)   $5 billion and $50 billion
D)   -$5 billion and $50 billionE) B) and D)
F) A) and B)

Question 6

The sale of bonds

Accepted Answer

A)   and stocks to raise money is called debt finance.
B)   and stocks to raise money is called equity finance.
C)   to raise money is called debt finance, while the sale of stocks to raise funds is called equity finance.
D)   to raise money is called equity finance, while the sale of stocks to raise funds is called debt finance.E) A) and B)
F) B) and D)

Question 7

Which of the following is correct?

Accepted Answer

A)   Lenders sell bonds and borrowers buy them.
B)   Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.
C)   The term junk bonds refers to bonds that have been resold many times.
D)   None of the above is correct.E) B) and D)
F) All of the above

Question 8

Given that Monika's income exceeds her expenditures, Monika is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) None of the above
F) All of the above

Question 9

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A)   low, indicating that buyers may expect earnings to rise.
B)   low, indicating that buyers may expect earnings to fall.
C)   high, indicating that buyers may expect earnings to rise.
D)   high, indicating that buyers may expect earnings to fall.E) B) and D)
F) A) and B)

Question 10

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Accepted Answer

A)   stock markets
B)   financial institutions
C)   financial markets
D)   financial intermediariesE) B) and D)
F) None of the above

Question 11

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Accepted Answer

The interest rate is below its...

Question 12

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Accepted Answer

A)   and investment both would increase.
B)   and investment both would decrease.
C)   would increase and investment would decrease.
D)   would decrease and investment would increase.E) A) and B)
F) B) and D)

Question 13

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A)   $460 million merits and $150 million merits
B)   $310 million merits and $190 million merits
C)   $350 million merits and $190 million merits
D)   $390 million merits and $110 million meritsE) B) and C)
F) A) and D)

Question 14

Short-term bonds are generally

Accepted Answer

A)   less risky than long-term bonds and so they feature higher interest rates.
B)   less risky than long-term bonds and so they feature lower interest rates.
C)   more risky than long-term bonds and so they feature higher interest rates.
D)   more risky than long-term bonds and so they feature lower interest rates.E) A) and D)
F) B) and D)

Question 15

Which of the following is both a store of value and a common medium of exchange?

Accepted Answer

A)   corporate bonds
B)   mutual funds
C)   checking account balances
D)   All of the above are correct.E) B) and C)
F) All of the above

Question 16

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Accepted Answer

A)   The demand for loanable funds shifted rightward.
B)   The demand for loanable funds shifted leftward.
C)   The supply of loanable funds shifted rightward.
D)   The supply of loanable funds shifted leftward.E) B) and C)
F) A) and C)

Question 17

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Accepted Answer

A)   7 percent.
B)   -1 percent.
C)   3 percent.
D)   4 percent.E) C) and D)
F) B) and D)

Question 18

If a firm wants to borrow it can

Accepted Answer

A)   supply bonds by selling them.
B)   supply bonds by buying them.
C)   demand bonds by selling them.
D)   demand bonds by buying them.E) All of the above
F) C) and D)

Question 19

The first element of a financial crisis is

Accepted Answer

A)   inflation.
B)   a decline in confidence in financial institutions.
C)   a relaxation of rules and regulations that pertain to the financial system.
D)   a large decline in some asset prices.E) All of the above
F) B) and C)

Question 20

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

it has a longer term to maturi...

Exam 13: Saving, Investment, and the Financial System

The sale of bonds

Correct Answer
verified

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Correct Answer
verified

Correct Answer
verified

If a firm wants to borrow it can

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

The first element of a financial crisis is

Correct Answer
verified

The purchase of a new house is the one form of

Correct Answer
verified

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Correct Answer
verified

List three characteristics of a bond that would make its interest rate higher than otherwise.

Correct Answer
verified
it has a longer term to maturi...
View Answer

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct Answer
verified

Which of the following is both a store of value and a common medium of exchange?

Correct Answer
verified

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct Answer
verified

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Correct Answer
verified

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Correct Answer
verified
The interest rate is below its...
View Answer

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Correct Answer
verified
default ri...
View Answer

Short-term bonds are generally

Correct Answer
verified

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Correct Answer
verified

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Correct Answer
verified

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Correct Answer
verified

In a closed economy, national saving is

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

The sale of bonds

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a firm wants to borrow it can

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

The first element of a financial crisis is

Correct AnswerverifiedShow Answer

The purchase of a new house is the one form of

Correct AnswerverifiedShow Answer

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Correct AnswerverifiedShow Answer

List three characteristics of a bond that would make its interest rate higher than otherwise.

Correct Answerverifiedit has a longer term to maturi...View AnswerShow Answer

Given that Monika's income exceeds her expenditures, Monika is best described as a

Correct AnswerverifiedShow Answer

Which of the following is both a store of value and a common medium of exchange?

Correct AnswerverifiedShow Answer

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 3 percent and the inflation rate is 4 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Correct AnswerverifiedThe interest rate is below its...View AnswerShow Answer

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

Correct Answerverifieddefault ri...View AnswerShow Answer

Short-term bonds are generally

Correct AnswerverifiedShow Answer

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Correct AnswerverifiedShow Answer

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate

Correct AnswerverifiedShow Answer

In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?

Correct AnswerverifiedShow Answer

In a closed economy, national saving is

Correct AnswerverifiedShow Answer

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it has a longer term to maturi...
View Answer

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Correct Answer
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The interest rate is below its...
View Answer

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View Answer

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