Question 1

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
-Refer to Scenario 26-1. This economy's government is running a

Accepted Answer

A)   budget surplus of $3,000.
B)   budget surplus of $12,000.
C)   budget deficit of $3,000.
D)   budget deficit of $12,000.E) A) and B)
F) A) and C)

Question 2

A corporation's earnings are

Accepted Answer

A)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.
B)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
C)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
D)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.E) A) and D)
F) B) and C)

Question 3

What is the main function of the financial system?

Accepted Answer

Matching s...

Question 4

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

Accepted Answer

A)   consumption.
B)   national saving.
C)   government purchases.
D)   net exports.E) B) and C)
F) C) and D)

Question 5

Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Accepted Answer

A)   50, which is high by historical standards.
B)   50, which is low by historical standards.
C)   25, which is high by historical standards.
D)   25, which is low by historical standards.E) C) and D)
F) B) and D)

Question 6

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 7

XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings per share of $3. What was its dividend yield?

Accepted Answer

A)   4%
B)   3%
C)   1%
D)   None of the above is correct.E) A) and B)
F) All of the above

Question 8

Higher education subsidies in the form of the federal government's student loan program

Accepted Answer

A)   induce more people to attend colleges and universities.
B)   keep interest rates low on student loans.
C)   cause lenders to take on more risk.
D)   All of the above are correct.E) None of the above
F) All of the above

Question 9

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

Accepted Answer

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

Question 10

The slope of the demand for loanable funds curve represents the

Accepted Answer

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

Question 11

The income that households have left after paying their taxes and paying for their consumption is known as .

Accepted Answer

The answer of The income that households have left after...

Question 12

We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)   the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)   Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
C)   Bond A has a term of 20 years and Bond B has a term of 2 years.
D)   All of the above are correct.E) A) and C)
F) B) and C)

Question 13

Which of the following could explain a decrease in the equilibrium interest rate and an increase 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 D)
F) A) and C)

Question 14

The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

Accepted Answer

A) True 
 B)False

Question 15

Banks and mutual funds are examples of financial markets.

Accepted Answer

A) True 
 B)False

Question 16

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)   1,500, deficit
B)   1,500, surplus
C)   1,000, deficit
D)   1,000, surplusE) None of the above
F) A) and B)

Question 17

Other things the same, a higher interest rate induces people to

Accepted Answer

A)   save more, so the supply of loanable funds slopes upward.
B)   save less, so the supply of loanable funds slopes downward.
C)   invest more, so the supply of loanable funds slopes upward.
D)   invest less, so the supply of loanable funds slopes downward.E) B) and C)
F) A) and C)

Question 18

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Accepted Answer

A)   saving and the interest rate
B)   saving but not the interest rate
C)   the interest rate but not saving
D)   neither saving nor the interest rateE) A) and C)
F) All of the above

Question 19

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Accepted Answer

A)   11 percent.
B)   approximately 6 percent.
C)   between 6 percent and 8 percent.
D)   between 11 percent and 13 percent.E) A) and B)
F) A) and C)

Question 20

An increase in the quantity of loanable funds traded means that

Accepted Answer

A)   firms are borrowing less and investment decreases.
B)   firms are borrowing less and investment increases.
C)   firms are borrowing more and investment increases.
D)   firms are borrowing more and investment decreases.E) A) and B)
F) A) and D)

Exam 8: Saving, Investment, and the Financial System

XDF Corporation had a P/E ratio of 25, earnings per share of $4, and retained earnings per share of $3. What was its dividend yield?

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What is the main function of the financial system?

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We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

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Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

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

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For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

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Bay City Mining, Inc. has a price of $20 a share, outstanding shares of 2.5 million, retained earnings of $1 million dollars, and a dividend yield of 2 percent. It has a price-earnings ratio of

Correct AnswerverifiedShow Answer

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

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Banks and mutual funds are examples of financial markets.

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The financial system coordinates investment and saving, which are important determinants of long-run real GDP.

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An increase in the quantity of loanable funds traded means that

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The slope of the demand for loanable funds curve represents the

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Higher education subsidies in the form of the federal government's student loan program

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Other things the same, a higher interest rate induces people to

Correct AnswerverifiedShow Answer

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. This economy's government is running a

Correct AnswerverifiedShow Answer

A corporation's earnings are

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The income that households have left after paying their taxes and paying for their consumption is known as .

Correct AnswerverifiedShow Answer

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What value of government purchases would make national savings equal to 2,000 and at that value would the government have a deficit or surplus?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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