Question 1

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Accepted Answer

A)  demand for and the supply of loanable funds to the right.
B)  demand for and the supply of loanable funds to the left.
C)  supply of loanable funds to the right and the demand for loanable funds to the left.
D)  None of the above is correct.E) A) and D)
F) All of the above

Question 2

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Accepted Answer

A)  9.0 percent
B)  5 percent
C)  3.5 percent
D)  None of the above is correct.E) A) and D)
F) A) and C)

Question 3

Table 13-1
   Stack  Sym  Yld % P/E  Val 100s  Hi  Lo  Clase  Net Che.  GenMills  GIS 2.5351375844.343.543.97−0.63 Gillette  G 2.2313042831.129.7300.17 Graca  GGG 1.21670524.223.123.95−0.53 Hershey  HSY 2.138541863.461.762.450.72\begin{array} { | l | l | l | l | l | l | l | l | l } \hline 	ext { Stack } & 	ext { Sym } & 	ext { Yld } \% & 	ext { P/E } & 	ext { Val 100s } & 	ext { Hi } & 	ext { Lo } & 	ext { Clase } & 	ext { Net Che. } \\hline 	ext { GenMills } & 	ext { GIS } & 2.5 & 35 & 13758 & 44.3 & 43.5 & 43.97 & - 0 .63 \\hline 	ext { Gillette } & 	ext { G } & 2.2 & 31 & 30428 & 31.1 & 29.7 & 30 & 0 .17 \\hline 	ext { Graca } & 	ext { GGG } & 1.2 & 16 & 705 & 24.2 & 23.1 & 23.95 & - 0 .53 \\hline 	ext { Hershey } & 	ext { HSY } & 2.1 & 38 & 5418 & 63.4 & 61.7 & 62.45 & 0 .72 \\hline\end{array} Stack  GenMills  Gillette  Graca  Hershey ​ Sym  GIS  G  GGG  HSY ​ Yld %2.52.21.22.1​ P/E 35311638​ Val 100s 13758304287055418​ Hi 44.331.124.263.4​ Lo 43.529.723.161.7​ Clase 43.973023.9562.45​ Net Che. −0.630.17−0.530.72​​ 
-Refer to Table 13-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Accepted Answer

A)  GenMills
B)  Gillette
C)  Graco
D)  Hershey E) A) and B)
F) A) and C)

Question 4

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)  both Midwestern corporation and Southern corporation
B)  Midwestern corporation but not Southern corporation
C)  Southern corporation but not Midwestern corporation
D)  neither Midwestern nor Southern corporationE) A) and D)
F) B) and C)

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

On which of these bonds is the prospect of default least likely?

Accepted Answer

A)  a junk bond
B)  a bond issued by the state of Arizona
C)  a bond issued by the federal government
D)  a bond issued by General Electric CorporationE) A) and B)
F) All of the above

Question 7

Figure 13-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 13-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)  In response to tax reform, firms are encouraged to invest more than they previously invested.
B)  In response to tax reform, households are encouraged to save more than they previously saved.
C)  Government goes from running a balanced budget to running a budget deficit.
D)  Any of the above events would shift the supply curve from S1 to S2.E) B) and C)
F) A) and D)

Question 8

Which of the following involves financial intermediation?

Accepted Answer

A)  a bank makes a loan
B)  a household buys stock issued by a corporation
C)  a foreign government purchases U.S. government bonds
D)  All of the above are correct.E) A) and B)
F) C) and D)

Question 9

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Accepted Answer

A)  only Larry's
B)  only Curly Corporation's
C)  Larry's and Curly Corporation's
D)  neither Larry's nor Curly Corporation'sE) None of the above
F) B) and C)

Question 10

Other things the same, an increase in the budget deficit

Accepted Answer

A)  shifts the demand for loanable funds right, so the interest rate rises.
B)  shifts the demand for loanable funds left, so the interest rate falls.
C)  shifts the supply of loanable funds right, so the interest rate falls.
D)  shifts the supply of loanable funds left, so the interest rate rises.E) A) and B)
F) None of the above

Question 11

Public saving is T - G, while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 12

If a firm's price-earnings ratio is relatively low, then it might be an indication that

Accepted Answer

A)  the demand for the stock is relatively high.
B)  the supply of the stock is relatively low.
C)  people expect the firm's earnings to rise.
D)  people expect the firm's earnings to fall.E) All of the above
F) A) and D)

Question 13

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)  a larger investment tax credit
B)  an expansion of eligibility for Individual Retirement Accounts
C)  an increase in income-tax rates, with no change in the government budget deficit or surplus
D)  an increase in government purchases, with no change in taxesE) B) and C)
F) A) and B)

Question 14

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 15

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Accepted Answer

A)  a lower interest rate because it has less risk.
B)  a lower interest rate because it has more risk.
C)  a higher interest rate because it has more risk.
D)  the same interest rate, because there is no relationship between term and risk.E) C) and D)
F) None of the above

Question 16

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Accepted Answer

A) True 
 B)False

Question 17

Scenario 13-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $300; net exports = $100;
taxes = $230; private saving = $200; and national saving = $150.
-Refer to Scenario 13-3. This economy's government is running a

Accepted Answer

A)  budget deficit of $50.
B)  budget deficit of $80.
C)  budget surplus of $50.
D)  budget surplus of $80.E) B) and C)
F) A) and D)

Question 18

If Huedepool Beer runs into financial difficulty, the stockholders as

Accepted Answer

A)  part owners of Huedepool are paid before bondholders get paid anything at all.
B)  part owners of Huedepool are paid after bondholders get paid.
C)  creditors of Huedepool are paid before bondholders get paid anything at all.
D)  creditors of Huedepool are paid after bondholders get paid.E) C) and D)
F) A) and C)

Question 19

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following is not correct?

Accepted Answer

A)  Gross domestic product is both total income in an economy and total expenditures on the economy's output of goods and services.
B)  In a closed economy net exports are zero.
C)  National saving is the sum of private saving and public saving.
D)  Purchases of capital goods are excluded from GDP.E) A) and B)
F) None of the above

Exam 13: Saving, Investment, and the Financial System

Other things the same, an increase in the budget deficit

Correct Answer
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If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Correct Answer
verified

On which of these bonds is the prospect of default least likely?

Correct Answer
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Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Correct Answer
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Which of the following is not correct?

Correct Answer
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Other things the same, as the maturity of a bond becomes longer, the bond will pay

Correct Answer
verified

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Correct Answer
verified

Figure 13-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 13-1. Which of the following events would shift the supply curve from S1 to S2?

Correct Answer
verified

Which of the following involves financial intermediation?

Correct Answer
verified

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

Correct Answer
verified

Lenders buy bonds and borrowers sell them.

Correct Answer
verified

If a firm's price-earnings ratio is relatively low, then it might be an indication that

Correct Answer
verified

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Correct Answer
verified

Scenario 13-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 13-3. This economy's government is running a

Correct Answer
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Which of the following is a financial-market transaction?

Correct Answer
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Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Correct Answer
verified

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct Answer
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Public saving is T - G, while private saving is Y - T - C.

Correct Answer
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Correct Answer
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If Huedepool Beer runs into financial difficulty, the stockholders as

Correct Answer
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Exam 13: Saving, Investment, and the Financial System

Other things the same, an increase in the budget deficit

Correct AnswerverifiedShow Answer

If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.

Correct AnswerverifiedShow Answer

On which of these bonds is the prospect of default least likely?

Correct AnswerverifiedShow Answer

Suppose a country repealed its investment tax credit. The effects of this are represented by shifting the

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and the real interest rate is 2 percent, then what is the inflation rate?

Correct AnswerverifiedShow Answer

Figure 13-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 13-1. Which of the following events would shift the supply curve from S1 to S2?

Correct AnswerverifiedShow Answer

Which of the following involves financial intermediation?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Lenders buy bonds and borrowers sell them.

Correct AnswerverifiedShow Answer

If a firm's price-earnings ratio is relatively low, then it might be an indication that

Correct AnswerverifiedShow Answer

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Correct AnswerverifiedShow Answer

Scenario 13-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 13-3. This economy's government is running a

Correct AnswerverifiedShow Answer

Which of the following is a financial-market transaction?

Correct AnswerverifiedShow Answer

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Correct AnswerverifiedShow Answer

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct AnswerverifiedShow Answer

Public saving is T - G, while private saving is Y - T - C.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If Huedepool Beer runs into financial difficulty, the stockholders as

Correct AnswerverifiedShow Answer

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