Question 1

By definition, equity finance

Accepted Answer

A)  is accomplished when units of government sell bonds.
B)  is accomplished when firms sell bonds.
C)  is accomplished when firms sell shares of stock.
D)  involves "fair" interest rates or dividend yields.E) All of the above
F) None of the above

Question 2

All else equal, when people become more optimistic about a company's future, the

Accepted Answer

A)  supply of the stock and the price will both rise.
B)  supply of the stock and the price will both fall.
C)  demand for the stock and the price will both rise.
D)  demand for the stock and the price will both fall.E) None of the above
F) All of the above

Question 3

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Accepted Answer

A) True 
 B)False

Question 4

For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then

Accepted Answer

A)  private saving = $10,000 and GDP = $54,000.
B)  private saving = $10,000 and GDP = $58,000.
C)  private saving = $12,000 and GDP = $67,000.
D)  private saving = $12,000 and GDP = $72,000.E) A) and B)
F) A) and C)

Question 5

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) None of the above
F) All of the above

Question 6

In a closed economy, what remains after paying for consumption and government purchases is

Accepted Answer

A)  national disposable income.
B)  national saving.
C)  public saving.
D)  private saving.E) A) and B)
F) C) and D)

Question 7

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 D)
F) B) and C)

Question 8

Which of the following is both a store of value and a common medium of exchange?

Accepted Answer

A)  corporate bonds
B)  mutual funds
C)  checking account balances
D)  All of the above are correct.E) A) and B)
F) All of the above

Question 9

If there is a shortage 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.E) B) and C)
F) None of the above

Question 10

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 11

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Accepted Answer

A)  increased both interest rates and investment.
B)  increased interest rates and decreased investment.
C)  decreased interest rates and increased investment.
D)  decreased both interest rates and investment.E) A) and D)
F) All of the above

Question 12

Banks

Accepted Answer

A)  play a role in creating an asset that people can use as a medium of exchange.
B)  are financial intermediaries, but mutual funds are not financial intermediaries.
C)  are financial markets, as are bond markets.
D)  All of the above are correct.E) B) and C)
F) A) and B)

Question 13

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Accepted Answer

A)  "Buy low-risk bonds."
B)  "Use a medium of exchange."
C)  "Diversify."
D)  "Intermediate."E) B) and C)
F) None of the above

Question 14

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) A) and D)
F) None of the above

Question 15

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

Accepted Answer

A)  there is a surplus and the interest rate is above the equilibrium level.
B)  there is a surplus and the interest rate is below the equilibrium level.
C)  there is a shortage and the interest rate is above the equilibrium level.
D)  there is a shortage and the interest rate is below the equilibrium level.E) A) and D)
F) A) and C)

Question 16

A mutual fund

Accepted Answer

A)  is a financial institution that stands between savers and borrowers.
B)  is a financial intermediary.
C)  allows people with small amounts of money to diversify their holdings.
D)  All of the above are correct.E) A) and D)
F) A) and C)

Question 17

Which of the following is not correct?

Accepted Answer

A)  By saving a larger portion of its GDP, a country can raise its output per worker.
B)  Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date.
C)  Financial intermediaries are the only type of financial institution.
D)  The financial system helps match people's saving with other people's borrowing.E) C) and D)
F) A) and B)

Question 18

A corporation's earnings are the amount of revenue it receives for the sale of its products

Accepted Answer

A)  minus its cost of production as measured by its accountants. Earnings must be paid out as dividends.
B)  minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation.
C)  minus its direct and indirect costs as measured by its economists. Earnings must be paid out as dividends.
D)  minus its direct and indirect cost as measure by its economists. Earnings may be paid out as dividends or retained by the corporation.E) B) and C)
F) A) and D)

Question 19

Figure 13-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 13-1. What is measured along the vertical axis of the graph?

Accepted Answer

A)  the nominal interest rate
B)  the real interest rate
C)  the quantity of investment
D)  the quantity of savingE) C) and D)
F) None of the above

Question 20

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Exam 13: Saving, Investment, and the Financial System

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have

Correct AnswerverifiedShow Answer

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

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What are the basic differences between bonds and stocks?

Correct AnswerverifiedA bond is a certificate of indebtedness ...View AnswerShow Answer

If there is a shortage of loanable funds, then

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By definition, equity finance

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Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

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If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,

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Which of the following is both a store of value and a common medium of exchange?

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For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then

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. What is measured along the vertical axis of the graph?

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A corporation's earnings are the amount of revenue it receives for the sale of its products

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The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

Correct AnswerverifiedShow Answer

All else equal, when people become more optimistic about a company's future, the

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The slope of the demand for loanable funds curve represents the

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

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Which of the following is not correct?

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We interpret the meaning of "loanable funds" as the

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In a closed economy, what remains after paying for consumption and government purchases is

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Banks

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A mutual fund

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A bond is a certificate of indebtedness ...
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