Question 1

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Accepted Answer

A) True 
 B)False

Question 2

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

A)   Fran and Miller are both investing.
B)   Fran and Miller are both saving.
C)   Fran is investing;Miller is saving.
D)   Fran is saving;Miller is investing.E) A) and C)
F) A) and B)

Question 3

Which of the following statements is not correct?

Accepted Answer

A)   If GDP is rising faster than debt,the government is,in some sense,living within its means.
B)   The ratio of debt to GDP in the United States has always been less than one.
C)   Debts during wars may distribute the burden of fighting the war more evenly across generations.
D)   During times of peace in the United States,the ratio of debt to GDP sometimes rose.E) B) and D)
F) C) and D)

Question 4

In a closed economy,if Y and T remained the same,but G rose,and C fell but by less than the rise in G,what would happen to public and national saving?

Accepted Answer

A)   public and national saving would rise
B)   public and national saving would fall
C)   public saving would rise and national saving would fall
D)   public saving would fall and national saving would riseE) A) and B)
F) A) and C)

Question 5

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Accepted Answer

A)   large decline in some asset prices  →\rightarrow→  insolvencies at financial institutions  →\rightarrow→ decline in confidence in financial institutions
B)   insolvencies at financial institutions  →\rightarrow→ decline in confidence in financial institutions  →\rightarrow→ large decline in some asset prices
C)   insolvencies at financial institutions  →\rightarrow→ economic downturn  →\rightarrow→ credit crunch
D)   insolvencies at financial institutions  →\rightarrow→ credit crunch  →\rightarrow→ economic downturn E) A) and B)
F) None of the above

Question 6

If there is a shortage in the market for loanable funds,what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Accepted Answer

A)   desired saving and desired investment both fall
B)   desired saving and desired investment both rise
C)   desired saving falls and desired investment rises
D)   desired saving rises and desired investment fallsE) B) and C)
F) A) and D)

Question 7

Which of the following expressions must be equal to national saving for a closed economy?

Accepted Answer

A)   Y - I - G - NX
B)   Y - C - G
C)   Y - I - C
D)   G + C - YE) A) and C)
F) None of the above

Question 8

National saving is equal to Y - T - C.

Accepted Answer

A) True 
 B)False

Question 9

In addition to

Accepted Answer

A)   performing financial intermediation,banks are important in that they help create a medium of exchange.
B)   serving as financial markets,mutual funds are important in that they help create a store of value.
C)   serving as stores of value,stocks and bonds also serve as media of exchange.
D)   All of the above are correct.E) A) and C)
F) A) and D)

Question 10

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) None of the above
F) A) and C)

Question 11

If Congress instituted an investment tax credit,the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A)   private saving and so shift the supply of loanable funds left.
B)   investment and so shift the demand for loanable funds left.
C)   public saving and so shift the supply of loanable funds left.
D)   None of the above is correct.E) None of the above
F) B) and D)

Question 13

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

Accepted Answer

A)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) None of the above
F) A) and C)

Question 14

In a closed economy,if Y is 10,000,T is 1,000,G is 3,000,and C is 5,000,then

Accepted Answer

A)   the government has a budget surplus and investment is 1,000
B)   the government has a budget surplus and investment is 2,000
C)   the government has a budget deficit and investment is 1,000
D)   the government has a budget deficit and investment is 2,000E) All of the above
F) A) and B)

Question 15

Figure 13-2.The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. 
-Refer to Figure 13-2.Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A)   The government goes from running a budget deficit to running a budget surplus.
B)   Firms become optimistic about the future and,as a result,they plan to increase their purchases of new equipment and construction of new factories.
C)   A change in the tax laws encourages people to consume less and save more.
D)   A change in the tax laws encourages people to consume more and save less.E) C) and D)
F) A) and C)

Question 16

When a corporation experiences financial problems,bondholders are paid before stockholders.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following is correct?

Accepted Answer

A)   Some bonds have terms as short as a few months.
B)   Because they are so risky,junk bonds pay a low rate of interest.
C)   Corporations buy bonds to raise funds.
D)   All of the above are correct.E) All of the above
F) B) and C)

Question 18

A stock's dividend yield is the

Accepted Answer

A)   dividend as a percentage of the price per share.
B)   stock price as a percentage of the dividend.
C)   dividend as a percentage of the retained earnings per share.
D)   retained earnings per share as the percentage of the dividend.E) C) and D)
F) All of the above

Question 19

In a closed economy,public saving is the amount of

Accepted Answer

A)   income that households have left after paying for taxes and consumption.
B)   income that businesses have left after paying for the factors of production.
C)   tax revenue that the government has left after paying for its spending.
D)   spending that the government undertakes in excess of the taxes it collects.E) A) and B)
F) A) and C)

Question 20

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) None of the above
F) A) and B)

Exam 26: Saving,investment,and the Financial System

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

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

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In addition to

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The first three elements of a financial crisis are correctly represented as taking place in the following order:

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

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If Congress instituted an investment tax credit,the demand for loanable funds would shift rightward.

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

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In a closed economy,if Y is 10,000,T is 1,000,G is 3,000,and C is 5,000,then

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Which of the following expressions must be equal to national saving for a closed economy?

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Figure 13-2.The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 13-2.Which of the following events would shift the demand curve from D1 to D2?

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Which of the following statements is not correct?

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National saving is equal to Y - T - C.

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A stock's dividend yield is the

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Which of the following is correct?

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An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Correct AnswerverifiedShow Answer

If there is a shortage in the market for loanable funds,what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Correct AnswerverifiedShow Answer

When a corporation experiences financial problems,bondholders are paid before stockholders.

Correct AnswerverifiedShow Answer

In a closed economy,if Y and T remained the same,but G rose,and C fell but by less than the rise in G,what would happen to public and national saving?

Correct AnswerverifiedShow Answer

A checking deposit functions as

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In a closed economy,public saving is the amount of

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