Question 1

The final element of a financial crisis is

Accepted Answer

A)   an economic downturn.
B)   a decline in confidence in financial institutions.
C)   declining prices of real estate or other assets.
D)   a vicious circle.

Question 2

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

A)   bank deposits and purchases of bonds
B)   bank deposits but not purchases of bonds
C)   purchases of bonds but not bank deposits
D)   neither purchases of bonds nor bank deposits

Question 3

Which of the following numbers is not associated with shares of a company's stock?

Accepted Answer

A)   term
B)   dividend
C)   price
D)   price-earnings ratio

Question 4

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

Accepted Answer

A)   and quantity of loanable funds rises.
B)   and quantity of loanable funds falls.
C)   rises and the quantity of loanable funds falls.
D)   falls and the quantity of loanable funds rises.

Question 5

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The demand for loana...

Question 6

If a firm wants to borrow it can

Accepted Answer

A)   supply bonds by selling them.
B)   supply bonds by buying them.
C)   demand bonds by selling them.
D)   demand bonds by buying them.

Question 7

A low price-earnings ratio indicates that either the stock is

Accepted Answer

A)   undervalued or people are relatively optimistic about the corporation's prospects.
B)   overvalued or people are relatively optimistic about the corporation's prospects.
C)   overvalued or people are relatively pessimistic about the corporation's prospects.
D)   undervalued or people are relatively pessimistic about the corporation's prospects.

Question 8

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

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.

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

Which of the following events could explain an increase in interest rates together with an increase in investment?

Accepted Answer

A)   The government runs a larger deficit.
B)   The government institutes an investment tax credit.
C)   The government replaces the income tax with a consumption tax.
D)   None of the above is correct.

Question 11

In a closed economy, private saving is

Accepted Answer

A)   the amount of income that households have left after paying for their taxes and consumption.
B)   the amount of income that businesses have left after paying for the factors of production.
C)   the amount of tax revenue that the government has left after paying for its spending.
D)   always equal to investment.

Question 12

Use the following table to answer the following questions.
Table 26-1
 
-Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Graco stock traded that day?

Accepted Answer

A)   $68,770,900
B)   $6,877,090
C)   $687,709
D)   $6,877.1

Question 13

If there is a surplus of loanable funds, then

Accepted Answer

A)   the quantity demanded is greater than the quantity supplied and the interest rate will rise.
B)   the quantity demanded is greater than the quantity supplied and the interest rate will fall.
C)   the quantity supplied is greater than the quantity demanded and the interest rate will rise.
D)   the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 14

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Accepted Answer

A)   supply of loanable funds shifted to the right.
B)   supply of loanable funds shifted to the left.
C)   demand for loanable funds shifted to the right.
D)   demand for loanable funds shifted to the left.

Question 15

If there is a surplus of loanable funds, then

Accepted Answer

A)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
B)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
C)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
D)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

Question 16

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Accepted Answer

A)   interest rates and the equilibrium quantity of loanable funds rise.
B)   interest rates rise and the equilibrium quantity of loanable funds fall.
C)   interest rates fall and the equilibrium quantity of loanable funds rise.
D)   interest rates and the equilibrium quantity of loanable funds fall.

Question 17

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?

Accepted Answer

default ri...

Question 18

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 term

Question 19

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Accepted Answer

demand, ri...

Question 20

Financial crises seldom involve economic downturns.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Correct AnswerverifiedShow Answer

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Correct AnswerverifiedShow Answer

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?

Correct Answerverifieddefault ri...View AnswerShow Answer

Which of the following counts as part of the supply of loanable funds?

Correct AnswerverifiedShow Answer

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

Correct Answerverifieddemand, ri...View AnswerShow Answer

Financial crises seldom involve economic downturns.

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

Correct AnswerverifiedShow Answer

In a closed economy, private saving is

Correct AnswerverifiedShow Answer

Which of the following events could explain an increase in interest rates together with an increase in investment?

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, then

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, then

Correct AnswerverifiedShow Answer

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium

Correct AnswerverifiedShow Answer

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Correct AnswerverifiedThe demand for loana...View AnswerShow Answer

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

Correct AnswerverifiedShow Answer

Which of the following numbers is not associated with shares of a company's stock?

Correct AnswerverifiedShow Answer

If a firm wants to borrow it can

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. Assume that the closing price was also the average price at which each stock transaction took place. What was the total dollar volume of Graco stock traded that day?

Correct AnswerverifiedShow Answer

The final element of a financial crisis is

Correct AnswerverifiedShow Answer

A low price-earnings ratio indicates that either the stock is

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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When tax code changes increase investment incentives, the ___ for loanable funds curve shifts to the _. This results in an) _ in the interest rate and an) ___ in investment.

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The demand for loana...
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