Question 1

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Accepted Answer

A)   These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver.
B)   These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower.
C)   These purchases are called consumption. If you raise the funds to purchase them from others you are a saver.
D)   These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.E) None of the above
F) All of the above

Question 2

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

Accepted Answer

A)   both high credit risk and a long term
B)   high credit risk but not a long term
C)   a long term but not a high credit risk
D)   neither high credit risk nor a long termE) A) and B)
F) B) and D)

Question 3

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

Question 4

The identity that shows that total income and total expenditure are equal is

Accepted Answer

A)   GDP = Y.
B)   Y = DI + T + NX.
C)   GDP = GNP - NX.
D)   Y = C + I + G + NX.E) None of the above
F) B) and D)

Question 5

Which of the following statements about mutual funds is correct?

Accepted Answer

A)   A mutual fund is a financial intermediary.
B)   A mutual fund acquires its funds primarily by selling shares to the public.
C)   People who buy shares from a mutual fund accept all of the risk and return associated with the mutual fund's portfolio.
D)   All of the above are correct.E) A) and B)
F) A) and C)

Question 6

If the government currently has a budget deficit, then

Accepted Answer

A)   it does not necessarily have a debt.
B)   its debt is increasing.
C)   government expenditures are greater than taxes.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 7

After a corporation issues stock, the stock

Accepted Answer

A)   cannot be resold.
B)   can be resold only if the corporation wants to buy it back.
C)   can be resold on exchanges; the resale will raise additional funds for the corporation.
D)   None of the above are correct.E) A) and B)
F) B) and C)

Question 8

A bond buyer is a

Accepted Answer

A)   saver. Bond buyers must hold their bonds until maturity.
B)   saver. Bond buyers may sell their bonds prior to maturity.
C)   borrower. Bond buyers must hold their bonds until maturity.
D)   borrower. Bond buyers may sell their bonds prior to maturity.E) A) and B)
F) A) and C)

Question 9

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

Question 10

Stock represents

Accepted Answer

A)   a claim to a share of the profits of a firm.
B)   ownership in a firm.
C)   equity finance.
D)   All of the above are correctE) None of the above
F) All of the above

Question 11

In the language of macroeconomics, investment refers to

Accepted Answer

A)   saving.
B)   the purchase of new capital.
C)   the purchase of stocks, bonds, or mutual funds.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 12

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)   investment falls by $1b.
B)   investment falls by $3b.
C)   investment increases by $1b.
D)   investment falls by $2b.E) C) and D)
F) A) and B)

Question 13

Which of the following bond buyers did not buy the bond that best met his or her objective?

Accepted Answer

A)   Jackie wanted a bond with a high interest rate and was willing to take a lot of risk. She purchased a junk bond.
B)   Andrew wanted a bond that would allow him to legally avoid paying federal income taxes. He purchased a municipal bond.
C)   Suzy wanted to purchase a bond whose seller was unlikely to default. She purchased a bond that Standards and Poor's rated a low credit risk.
D)   Cecilia held long-term bonds rather than short-term bonds to avoid risk.E) All of the above
F) A) and C)

Question 14

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Accepted Answer

A)   the demand for the stock is relatively high.
B)   the supply of the stock is relatively low.
C)   people expect the firm's earnings to rise.
D)   people expect the firm's earnings to fall.E) All of the above
F) A) and B)

Question 15

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices.
a. "I am in a high federal income tax bracket and I don't want to take very much risk."
b. "I want a high return and I am willing to take a lot of risk to get it."
c. "I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a. A municipal bond. Municipal bonds gen...

Question 16

A closed economy

Accepted Answer

A)   does not trade with other economies.
B)   is centrally-planned.
C)   does not allow financial intermediation.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 17

In a closed economy, each unit of output is either consumed by households or invested.

Accepted Answer

A) True 
 B)False

Question 18

Suppose private saving in a closed economy is $12b and investment is $10b.

Accepted Answer

A)   National saving must equal $12b.
B)   Public saving must equal $2b.
C)   The government budget surplus must equal $2b.
D)   The government budget deficit must equal $2b.E) C) and D)
F) None of the above

Question 19

The source of the supply of loanable funds is

Accepted Answer

A)   saving, and the source of the demand for loanable funds is investment.
B)   consumption, and the source of the demand for loanable funds is investment.
C)   investment, and the source of the demand for loanable funds is saving.
D)   the interest rate, and the source of the demand for loanable funds is saving.E) A) and D)
F) All of the above

Question 20

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Correct Answer
verified

In the language of macroeconomics, investment refers to

Correct Answer
verified

Stock represents

Correct Answer
verified

Which of the following bond buyers did not buy the bond that best met his or her objective?

Correct Answer
verified

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

Correct Answer
verified

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

Correct Answer
verified

If a firm's priceearnings ratio is relatively low, then it might be an indication that

Correct Answer
verified

In a closed economy, each unit of output is either consumed by households or invested.

Correct Answer
verified

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Correct Answer
verified

After a corporation issues stock, the stock

Correct Answer
verified

The source of the supply of loanable funds is

Correct Answer
verified

If the government currently has a budget deficit, then

Correct Answer
verified

A bond buyer is a

Correct Answer
verified

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct Answer
verified

A closed economy

Correct Answer
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Which of the following statements about mutual funds is correct?

Correct Answer
verified

Suppose private saving in a closed economy is $12b and investment is $10b.

Correct Answer
verified

The identity that shows that total income and total expenditure are equal is

Correct Answer
verified

Correct Answer
verified
a. A municipal bond. Municipal bonds gen...
View Answer

Which of the following is correct?

Correct Answer
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Exam 8: Saving, Investment, and the Financial System

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Correct AnswerverifiedShow Answer

In the language of macroeconomics, investment refers to

Correct AnswerverifiedShow Answer

Stock represents

Correct AnswerverifiedShow Answer

Which of the following bond buyers did not buy the bond that best met his or her objective?

Correct AnswerverifiedShow Answer

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

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

If a firm's price­earnings ratio is relatively low, then it might be an indication that

Correct AnswerverifiedShow Answer

In a closed economy, each unit of output is either consumed by households or invested.

Correct AnswerverifiedShow Answer

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Correct AnswerverifiedShow Answer

After a corporation issues stock, the stock

Correct AnswerverifiedShow Answer

The source of the supply of loanable funds is

Correct AnswerverifiedShow Answer

If the government currently has a budget deficit, then

Correct AnswerverifiedShow Answer

A bond buyer is a

Correct AnswerverifiedShow Answer

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct AnswerverifiedShow Answer

A closed economy

Correct AnswerverifiedShow Answer

Which of the following statements about mutual funds is correct?

Correct AnswerverifiedShow Answer

Suppose private saving in a closed economy is $12b and investment is $10b.

Correct AnswerverifiedShow Answer

The identity that shows that total income and total expenditure are equal is

Correct AnswerverifiedShow Answer

Correct Answerverifieda. A municipal bond. Municipal bonds gen...View AnswerShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

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If a firm's priceearnings ratio is relatively low, then it might be an indication that

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Correct Answer
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a. A municipal bond. Municipal bonds gen...
View Answer

Correct Answer
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