Question 1

A perpetuity is distinguished from other bonds in that it

Accepted Answer

A)   pays continuously compounded interest.
B)   pays interest only when it matures.
C)   never matures.
D)   will be used to purchase another bond when it matures unless the owner specifies otherwise.E) B) and C)
F) A) and D)

Question 2

People who buy stock in a corporation such as General Electric become

Accepted Answer

A)   creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits.
B)   creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.
C)   part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.
D)   part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.E) All of the above
F) A) and B)

Question 3

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Accepted Answer

A)   Because they have the same term to maturity the interest rates should be the same.
B)   Because of the differences in tax treatment and credit risk, the state bond should have the higher interest rate.
C)   Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.
D)   It is not possible to say if one bond has a higher interest rate than the other.E) All of the above
F) B) and C)

Question 4

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 5

Which of the following is a certificate of indebtedness?

Accepted Answer

A)   stocks and bonds
B)   stocks but not bonds
C)   bonds but not stocks
D)   neither stocks nor bondsE) A) and B)
F) C) and D)

Question 6

When the government increases spending holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Accepted Answer

falls, inc...

Question 7

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Accepted Answer

A)   the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls.
B)   the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises.
C)   the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls.
D)   the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises.E) A) and B)
F) A) and D)

Question 8

Which of the following are financial intermediaries?

Accepted Answer

A)   both banks and mutual funds
B)   banks but not mutual funds
C)   mutual funds but not banks
D)   neither banks or mutual fundsE) B) and C)
F) A) and B)

Question 9

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A)   The government reduces the amount that people may put into savings accounts on which the interest is tax exempt.
B)   Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital.
C)   Consumers decide to decrease consumption and work more.
D)   All of the above could explain why the interest rate would be unchanged.E) All of the above
F) B) and D)

Question 10

Which of the following would a macroeconomist consider as investment?

Accepted Answer

A)   Marisa purchases a bond issued by Proctor and Gamble Corp.
B)   Karlee purchases stock issued by Texas Instruments, Inc.
C)   Charlie builds a new coffee shop.
D)   All of the above are correct.E) B) and C)
F) A) and D)

Question 11

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) B) and D)
F) A) and B)

Question 12

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 13

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. 
-Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

Accepted Answer

A)   the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% point 
C)  .
B)   the quantity of loanable funds traded to decrease to $75 and the interest rate to fall to 5% point 
B)  .
C)   the quantity of loanable funds traded to increase to $125 and the interest rate to fall to 5% point 
D)  .
D)   the quantity of loanable funds traded to decrease to $75 and the interest rate to rise to 7% point 
E)  .E) All of the above
F) B) and D)

Question 14

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Accepted Answer

A)   It would decrease.
B)   It would increase.
C)   It would stay the same.
D)   It might do any of the above.E) None of the above
F) A) and D)

Question 15

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Accepted Answer

A)   provide free higher education to all Americans.
B)   have college students sell equity in themselves.
C)   reduce interest rates on student loans.
D)   increase the number of colleges and universities in the United States.E) A) and D)
F) C) and D)

Question 16

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium.
 
-Refer to Table 26-3. Determine the quantity of private saving.

Accepted Answer

A)   $0.2 trillion
B)   $1.6 trillion
C)   $1.8 trillion
D)   $2.6 trillionE) A) and B)
F) C) and D)

Question 17

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) All of the above
F) B) and C)

Question 18

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

Accepted Answer

The answer of When tax code changes increase saving incentives,...

Question 19

The interest rate will and the quantity of loanable funds invested will when the government decreases the budget deficit.

Accepted Answer

The answer of The interest rate will and the quantity...

Question 20

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

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.E) B) and D)
F) B) and C)

Exam 18: Saving, Investment, and the Financial System

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

Correct AnswerverifiedShow Answer

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

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

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Correct AnswerverifiedShow Answer

Table 26-3. The following table presents information about a closed economy whose market for loanable funds is in equilibrium. -Refer to Table 26-3. Determine the quantity of private saving.

Correct AnswerverifiedShow Answer

Which of the following is a certificate of indebtedness?

Correct AnswerverifiedShow Answer

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The interest rate will and the quantity of loanable funds invested will when the government decreases the budget deficit.

Correct AnswerverifiedShow Answer

A perpetuity is distinguished from other bonds in that it

Correct AnswerverifiedShow Answer

When the government increases spending holding taxes constant), the budget balance _____. This causes the interest rate in the market for loanable funds to _____ and investment to _____.

Correct Answerverifiedfalls, inc...View AnswerShow Answer

Which of the following are financial intermediaries?

Correct AnswerverifiedShow Answer

Suppose the government deficit increases, but the interest rate remains the same. Which of the following things might have happened simultaneously to keep interest rates the same?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

An article in the textbook suggests that one method to correct the higher education inefficiency is to

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

Correct AnswerverifiedShow Answer

People who buy stock in a corporation such as General Electric become

Correct AnswerverifiedShow Answer

Which of the following would a macroeconomist consider as investment?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
default ri...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

When the government increases spending holding taxes constant), the budget balance ___. This causes the interest rate in the market for loanable funds to _ and investment to ___.

Correct Answer
verified
falls, inc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified