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Suppose a country repealed its investment tax credit.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 B)
F) A) and C)

Question 2

Stock represents

Accepted Answer

A)   a claim to a share of the profits of a firm.
B)   ownership in a firm.
C)   equity finance.
D)   All of the above are correctE) A) and B)
F) A) and C)

Question 3

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.E) C) and D)
F) A) and C)

Question 4

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 5

If the government currently has a budget deficit, then

Accepted Answer

A)   it does not necessarily have a debt.
B)   its debt is increasing.
C)   government expenditures are greater than taxes.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 6

If Congress increased the tax rate on interest income, investment

Accepted Answer

A)   would increase and saving would decrease.
B)   would decrease and saving would increase.
C)   and saving would increase.
D)   and saving would decrease.E) A) and C)
F) A) and B)

Question 7

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

Accepted Answer

A)   the market for loanable funds is in equilibrium.
B)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise.
C)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.
D)   the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.E) A) and B)
F) B) and D)

Question 8

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 9

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 depositsE) A) and B)
F) A) and C)

Question 10

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) All of the above

Question 11

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Question 12

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 13

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
 1 to D2 is called A)  an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. B)  an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. C)  a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. D)  a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-3. A shift of the demand curve from D1 to D2 is called

Accepted Answer

A)   an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend.
B)   an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments.
C)   a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend.
D)   a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments.E) B) and D)
F) A) and D)

Question 14

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Accepted Answer

A)   the decline in confidence in financial institutions
B)   the credit crunch
C)   the economic downturn
D)   the decline in asset pricesE) A) and D)
F) A) and B)

Question 15

Two of the economy's most important financial intermediaries are

Accepted Answer

A)   suppliers of funds and demanders of funds.
B)   banks and the bond market.
C)   the stock market and the bond market.
D)   banks and mutual funds.E) C) and D)
F) None of the above

Question 16

Figure 8-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.
 
-Refer to Figure 8-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

Accepted Answer

A)   The tax code is reformed to encourage greater saving.
B)   The tax code is reformed to encourage greater investment.
C)   The government starts running a budget deficit.
D)   The government starts running a budget surplus.E) None of the above
F) B) and D)

Question 17

The country of Meditor uses the merit as its currency. Recent national income statistics showed that it had GDP of $700 million merits, no government transfer payments, taxes of $210 million merits, a budget surplus of $60 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A)   450 million merits and $150 million merits
B)   410 million merits and $150 million merits
C)   330 million merits and $270 million merits
D)   290 million merits and $270 million meritsE) C) and D)
F) B) and C)

Question 18

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

Accepted Answer

A)   The government budget went from surplus to deficit.
B)   The government instituted an investment tax credit.
C)   The government reduced the tax rate on savings.
D)   None of the above is correct.E) None of the above
F) B) and C)

Question 19

Scenario 8-3. 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 8-3. For this economy, GDP equals

Accepted Answer

A)   $1,400.
B)   $1,430.
C)   $1,580
D)   $1,680.E) B) and C)
F) A) and D)

Question 20

In a closed economy, national saving is

Accepted Answer

A)   usually greater than investment.
B)   equal to investment.
C)   usually less than investment because of the leakage of taxes.
D)   always less than investment.E) B) and D)
F) A) and B)

Exam 8: Saving, Investment, and the Financial System

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 Answer
verified

Two of the economy's most important financial intermediaries are

Correct Answer
verified

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 Answer
verified

In a closed economy, national saving is

Correct Answer
verified

If the government currently has a budget deficit, then

Correct Answer
verified

Stock represents

Correct Answer
verified

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

Correct Answer
verified

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 8-3. A shift of the demand curve from D₁ to D₂ is called

Correct Answer
verified

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

Correct Answer
verified

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct Answer
verified

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

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price-earnings ratio is 15.

Correct Answer
verified

Figure 8-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 8-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

Correct Answer
verified

If Congress increased the tax rate on interest income, investment

Correct Answer
verified

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct Answer
verified
The claim that an increase in the intere...
View Answer

Scenario 8-3. 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 8-3. For this economy, GDP equals

Correct Answer
verified

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

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

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

Two of the economy's most important financial intermediaries are

Correct AnswerverifiedShow Answer

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

In a closed economy, national saving is

Correct AnswerverifiedShow Answer

If the government currently has a budget deficit, then

Correct AnswerverifiedShow Answer

Stock represents

Correct AnswerverifiedShow Answer

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

Correct AnswerverifiedShow Answer

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 8-3. A shift of the demand curve from D1 to D2 is called

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

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

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the divided per share is $2, then the price-earnings ratio is 15.

Correct AnswerverifiedShow Answer

Figure 8-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 8-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from to ?

Correct AnswerverifiedShow Answer

If Congress increased the tax rate on interest income, investment

Correct AnswerverifiedShow Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

Scenario 8-3. 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 8-3. For this economy, GDP equals

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 8-3. A shift of the demand curve from D₁ to D₂ is called

Correct Answer
verified

Correct Answer
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Correct Answer
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The claim that an increase in the intere...
View Answer

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