Question 1

How do banks make profits?

Accepted Answer

They charge borrower...

Question 2

Other things the same, a government budget deficit

Accepted Answer

A)  reduces public saving, but not national saving.
B)  reduces national saving, but not public saving.
C)  reduces both public and national saving.
D)  reduces neither public saving nor national saving.E) None of the above
F) A) and B)

Question 3

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) A) and B)
F) B) and C)

Question 4

In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.

Accepted Answer

national saving/inve...

Question 5

Suppose the Move It! exercise chain has revenues of $45 million, accounting costs of $15 million, and currently has issued 10 million shares of stocks selling at $90 each. Compute the price-earning ratio. Show your work. Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The earnings per share is ($45 million -...

Question 6

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A)  Private saving is equal to zero.
B)  Public saving is equal to zero.
C)  The economy's government is running neither a surplus nor a deficit.
D)  No restriction is necessary; saving and investment are equal for all closed economies.E) A) and B)
F) A) and C)

Question 7

In the small closed economy of San Lorena, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 80 billion denars, government purchases of goods and services were 70 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lorena?

Accepted Answer

A)  270 billion denars, 50 billion denars
B)  250 billion denars, 60 billion denars
C)  260 billion denars, 70 billion denars
D)  None of the above is correct.E) None of the above
F) B) and C)

Question 8

Which of the following is not correct?

Accepted Answer

A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures.
B)  Term refers to the scheduling of periodic interest rate payments on a bond.
C)  A bond is an IOU.
D)  There are millions of different bonds in the U.S. economy.E) A) and B)
F) B) and D)

Question 9

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A)  a movement from Point A to Point C
B)  a movement from Point B to Point A
C)  a movement from Point B to Point F
D)  a movement from Point C to Point BE) B) and C)
F) None of the above

Question 10

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes reduce saving incentives,...

Question 11

We associate the term debt finance with

Accepted Answer

A)  the bond market, and we associate the term equity finance with the stock market.
B)  the stock market, and we associate the term equity finance with the bond market.
C)  financial intermediaries, and we associate the term equity finance with financial markets.
D)  financial markets, and we associate the term equity finance with financial intermediaries.E) All of the above
F) B) and C)

Question 12

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Accepted Answer

A)  their consumption expenditures are being financed by someone else's saving.
B)  their consumption expenditures are being financed by someone else's investment.
C)  their investments are being financed by someone else's saving.
D)  their saving is being financed by someone else's investment.E) B) and C)
F) None of the above

Question 13

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A)  the interest rate and investment would rise.
B)  the interest rate would rise and investment would fall.
C)  the interest rate would fall and investment would rise.
D)  the interest rate and investment would fall.E) A) and D)
F) A) and C)

Question 14

The prices of stock traded on exchanges are determined by

Accepted Answer

A)  the Corporate Stock Administration.
B)  the administrators of NASDAQ.
C)  the supply of, and demand for, the stock.
D)  All of the above are correct.E) None of the above
F) B) and D)

Question 15

We interpret the meaning of "loanable funds" as the

Accepted Answer

A)  flow of resources available from private saving.
B)  flow of resources available to fund private investment.
C)  resources borrowed by private investors and by government.
D)  resources lent by private investors and by government.E) A) and B)
F) A) and C)

Question 16

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A)  supply of existing shares of the stock and the price will both rise.
B)  supply of existing shares of the stock and the price will both fall.
C)  demand for existing shares of the stock and the price will both rise.
D)  demand for existing shares of the stock and the price will both fall.E) B) and D)
F) A) and D)

Question 17

Which of the following statements about the term of a bond is correct?

Accepted Answer

A)  Term refers to the various characteristics of a bond, including its interest rate and tax treatment.
B)  The term of a bond is determined entirely by its credit risk.
C)  The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond.
D)  Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) B) and C)
F) A) and D)

Question 18

Northwest Wholesale Foods sells common stock. The company is using

Accepted Answer

A)  equity financing and the return shareholders earn is fixed.
B)  equity financing and the return shareholders earn depends on how profitable the company is.
C)  debt financing and the return shareholders earn is fixed.
D)  debt financing and the return shareholders earn depends on how profitable the company is.E) None of the above
F) A) and B)

Question 19

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

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is included in the demand for loanable funds?

Accepted Answer

A)  investment and government borrowing
B)  investment but not government borrowing
C)  government borrowing but not investment
D)  neither government borrowing nor investmentE) B) and C)
F) All of the above

Exam 26: Saving, Investment, and the Financial System

How do banks make profits?

Correct Answer
verified
They charge borrower...
View Answer

Correct Answer
verified
The earnings per share is ($45 million -...
View Answer

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Correct Answer
verified

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Correct Answer
verified

We associate the term debt finance with

Correct Answer
verified

Northwest Wholesale Foods sells common stock. The company is using

Correct Answer
verified

Which of the following statements about the term of a bond is correct?

Correct Answer
verified

The prices of stock traded on exchanges are determined by

Correct Answer
verified

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Correct Answer
verified

Other things the same, a government budget deficit

Correct Answer
verified

In a closed economy, Y - C - G equals ___. The variable Y is _, C is _, and G is ___.

Correct Answer
verified
national saving/inve...
View Answer

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

Correct Answer
verified

We interpret the meaning of "loanable funds" as the

Correct Answer
verified

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

When tax code changes reduce saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

Which of the following is included in the demand for loanable funds?

Correct Answer
verified

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

Correct Answer
verified

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Correct Answer
verified

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

How do banks make profits?

Correct AnswerverifiedThey charge borrower...View AnswerShow Answer

Correct AnswerverifiedThe earnings per share is ($45 million -...View AnswerShow Answer

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Correct AnswerverifiedShow Answer

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Correct AnswerverifiedShow Answer

We associate the term debt finance with

Correct AnswerverifiedShow Answer

Northwest Wholesale Foods sells common stock. The company is using

Correct AnswerverifiedShow Answer

Which of the following statements about the term of a bond is correct?

Correct AnswerverifiedShow Answer

The prices of stock traded on exchanges are determined by

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Other things the same, a government budget deficit

Correct AnswerverifiedShow Answer

In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.

Correct Answerverifiednational saving/inve...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

We interpret the meaning of "loanable funds" as the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.

Correct AnswerverifiedShow Answer

Which of the following is included in the demand for loanable funds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

Correct AnswerverifiedShow Answer

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Correct AnswerverifiedShow Answer

Correct Answer
verified
They charge borrower...
View Answer

Correct Answer
verified
The earnings per share is ($45 million -...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

In a closed economy, Y - C - G equals ___. The variable Y is _, C is _, and G is ___.

Correct Answer
verified
national saving/inve...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When tax code changes reduce saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
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