Question 1

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Accepted Answer

A) True 
 B)False

Question 2

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Accepted Answer

A) True 
 B)False

Question 3

Other things the same, which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)   a bond issued by a state with a very good credit rating
B)   a bond issued by the U.S. government
C)   a bond issued by a fairly new company doing genetic research
D)   a bond issued by NabiscoE) A) and B)
F) A) and C)

Question 4

A U.S. Treasury bond is a

Accepted Answer

A)   store of value and common medium of exchange.
B)   store of value, but not a common medium of exchange.
C)   a common medium of exchange, but not a store of value.
D)   neither a store of value nor a common medium of exchange.E) B) and D)
F) A) and B)

Question 5

The slope of the supply of loanable funds curve represents the

Accepted Answer

A)   positive relation between the real interest rate and investment.
B)   positive relation between the real interest rate and saving.
C)   negative relation between the real interest rate and investment.
D)   negative relation between the real interest rate and saving.E) All of the above
F) B) and D)

Question 6

If Canada goes from a large budget deficit to a small budget deficit, it will

Accepted Answer

A)   increase private saving and so shift the supply of loanable funds right.
B)   increase investment and so shift the demand for loanable funds right.
C)   increase public saving and so shift the supply of loanable funds right.
D)   reduce national saving and shift the supply left.E) All of the above
F) B) and D)

Question 7

Which of the following statements is correct?

Accepted Answer

A)   The expected future profitability of a corporation influences the demand for that corporation's stock.
B)   When a corporation sells stock as a means of raising funds it is engaging in debt finance.
C)   The owners of bonds sold by the Microsoft Corporation are part owners of that corporation.
D)   All bonds are, by definition, perpetuities.E) A) and B)
F) A) and C)

Question 8

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, investment amounts to

Accepted Answer

A)   $0.4 trillion.
B)   $2.1 trillion.
C)   $1.7 trillion.
D)   $1.2 trillion.E) B) and C)
F) A) and C)

Question 9

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Accepted Answer

A)   demand funds from the financial system by buying bonds.
B)   demand funds from the financial system by selling bonds.
C)   supply funds to the financial system by buying bonds.
D)   supply funds to the financial system by selling bonds.E) B) and D)
F) C) and D)

Question 10

Other things the same, an increase in taxes with no change in government purchases makes national saving

Accepted Answer

A)   rise. The supply of loanable funds shifts right.
B)   rise. The demand for loanable funds shifts right.
C)   fall. The supply of loanable funds shifts left.
D)   fall. The demand for loanable funds shifts left.E) B) and D)
F) B) and C)

Question 11

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Accepted Answer

A)   an increase in the supply of or a decrease in the demand for loanable funds
B)   an increase in the supply of or an increase in the demand for loanable funds
C)   a decrease in the supply of or a decrease in the demand for loanable funds
D)   a decrease in the supply of or an increase in the demand for loanable fundsE) None of the above
F) All of the above

Question 13

An increase in the budget deficit would cause a

Accepted Answer

A)   shortage of loanable funds at the original interest rate, which would lead to falling interest rates.
B)   surplus of loanable funds at the original interest rate, which would lead to rising interest rates.
C)   shortage of loanable funds at the original interest rate, which would lead to rising interest rates.
D)   surplus of loanable funds at the original interest rate, which would lead to falling interest rates.E) All of the above
F) A) and B)

Question 14

The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?

Accepted Answer

A)   $5 billion
B)   $4 billion
C)   $3 billion
D)   $11 billionE) None of the above
F) B) and C)

Question 15

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 B)
F) A) and C)

Question 16

Which of the following is a financial-market transaction?

Accepted Answer

A)   A saver buys shares in a mutual fund.
B)   A saver deposits money into a credit union.
C)   A saver buys a bond a corporation has just issued so it can purchase capital.
D)   None of the above is correct.E) A) and B)
F) None of the above

Question 17

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A)   the rich to the poor.
B)   financial institutions to business firms and government.
C)   households to financial institutions.
D)   savers to borrowers.E) C) and D)
F) None of the above

Question 18

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Accepted Answer

A)   C = $8 trillion, G = $3 trillion
B)   C = $13 trillion, G = -$1 trillion
C)   C = $9 trillion, G = $5 trillion
D)   C = $7 trillion, G = $1 trillionE) A) and D)
F) None of the above

Question 19

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Accepted Answer

A) True 
 B)False

Question 20

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) A) and C)

Exam 13: Saving, Investment, and the Financial System

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Correct Answer
verified

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Correct Answer
verified

At the broadest level, the financial system moves the economy's scarce resources from

Correct Answer
verified

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Correct Answer
verified

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct Answer
verified

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct Answer
verified

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

Correct Answer
verified

If Canada goes from a large budget deficit to a small budget deficit, it will

Correct Answer
verified

An increase in the budget deficit would cause a

Correct Answer
verified

The slope of the supply of loanable funds curve represents the

Correct Answer
verified

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct Answer
verified

Correct Answer
verified

By definition, equity finance

Correct Answer
verified

Other things the same, which bond would you expect to pay the lowest interest rate?

Correct Answer
verified

A U.S. Treasury bond is a

Correct Answer
verified

Other things the same, an increase in taxes with no change in government purchases makes national saving

Correct Answer
verified

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, investment amounts to

Correct Answer
verified

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Correct Answer
verified

Which of the following is a financial-market transaction?

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Exam 13: Saving, Investment, and the Financial System

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Correct AnswerverifiedShow Answer

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Correct AnswerverifiedShow Answer

At the broadest level, the financial system moves the economy's scarce resources from

Correct AnswerverifiedShow Answer

Skyline Chili wants to finance the purchase of new equipment for its restaurants. The firm has limited internal funds, so Skyline likely will

Correct AnswerverifiedShow Answer

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history.

Correct AnswerverifiedShow Answer

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

If Canada goes from a large budget deficit to a small budget deficit, it will

Correct AnswerverifiedShow Answer

An increase in the budget deficit would cause a

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds curve represents the

Correct AnswerverifiedShow Answer

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $3 trillion?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

By definition, equity finance

Correct AnswerverifiedShow Answer

Other things the same, which bond would you expect to pay the lowest interest rate?

Correct AnswerverifiedShow Answer

A U.S. Treasury bond is a

Correct AnswerverifiedShow Answer

Other things the same, an increase in taxes with no change in government purchases makes national saving

Correct AnswerverifiedShow Answer

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, investment amounts to

Correct AnswerverifiedShow Answer

Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future.

Correct AnswerverifiedShow Answer

Which of the following is a financial-market transaction?

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

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