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Exam 26: Saving, Investment, and the Financial System

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Question 81

True/False

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Financial crises seldom involve economic downturns.

A) True
B) False

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Question 82

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A decrease in taxes on interest income would increase the interest rate.

A) True
B) False

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Question 83

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Two of the economy's most important financial intermediaries are

To state that national saving is equal to investment, for a closed economy, is to state an accounting identity.

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling shares of stock.

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G) , represent?

In a closed economy, if Y, C, and T remained the same, a decrease in G would

Figure 26-2 The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2. Which of the following events would shift the demand curve from D₁ to D₂?

Generally, if people begin to expect a company to have higher future profits, the price of the company's stock will begin to decrease.

A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.

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

What does the maturity of a bond indicate?

A bond buyer is a

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?

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

The term loanable funds refers to all income that is not used for consumption.

How do banks make profits?

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

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