Question 1

You are required to testify before congress concerning the effects of an increase in the government surplus.Which is the correct thing to say?

Accepted Answer

A)  The debt and interest rates will rise.
B)  The debt and interest rates will fall.
C)  The debt will rise and interest rates will fall.
D)  The debt will fall and interest rates will rise.E) B) and C)
F) A) and B)

Question 2

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Accepted Answer

A) True 
 B)False

Question 3

Suppose that in a closed economy GDP is 11,000,consumption is 7,500,and taxes are 2,000.What value of Government purchases would make national savings equal to 1000 and at that value would the government have a deficit or surplus?

Accepted Answer

A)  2,500, deficit
B)  2,500, surplus
C)  1,000, deficit
D)  1,000, surplusE) A) and B)
F) C) and D)

Question 4

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below,the economy ...

Question 5

Suppose that 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) None of the above
F) B) and D)

Question 6

Suppose that Congress were to repeal an investment tax credit.What would happen in the market for loanable funds?

Accepted Answer

A)  The demand and supply of loanable funds would shift right.
B)  The demand and supply of loanable funds would shift left.
C)  The supply of loanable funds would shift right.
D)  The demand for loanable funds would shift left.E) A) and C)
F) B) and C)

Question 7

Which of the following is not correct?

Accepted Answer

A)  If you buy a bond from a corporation, you can sell the bond to someone else before it matures.
B)  Date to maturity refers to the scheduling of periodic interest rate payments on a bond.
C)  A bond is an IOU.
D)  There are millions of different bonds in the U.S.economy.E) A) and B)
F) A) and D)

Question 8

Thomas Publishing has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price to earnings ratio of

Accepted Answer

A)  50, which is high by historical standards.
B)  50, which is low by historical standards.
C)  25, which is high by historical standards.
D)  25, which is low by historical standards.E) B) and C)
F) A) and B)

Question 9

Suppose a closed economy had public saving of $3 trillion and private saving of $2 trillion.What is national saving and investment in this country?

Accepted Answer

A)  $5 trillion, $5 trillion
B)  $5 trillion, $2 trillion
C)  $1 trillion, $5 trillion
D)  $1 trillion, $2 trillionE) A) and B)
F) A) and C)

Question 10

If the demand for loanable funds shifts left,the equilibrium interest rate

Accepted Answer

A)  and quantity of loanable funds rise.
B)  and quantity of loanable funds fall.
C)  rises and the quantity of loanable funds falls.
D)  falls and the quantity of loanable funds rises.E) B) and C)
F) None of the above

Question 11

The ratio of government debt to GDP was higher during the Reagan Presidency than at any previous time in U.S.history.

Accepted Answer

A) True 
 B)False

Question 12

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Accepted Answer

A)  earnings.
B)  retained earnings.
C)  economic, or real, profit.
D)  dividend.E) All of the above
F) C) and D)

Question 13

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 14

Queen City Sausage stock is selling at $40 per share,it has retained earnings of $2.00 per share and dividends of $.50 per share.What is the price-earnings ratio and what is the dividend yield?

Accepted Answer

A)  20, 1.25 percent
B)  20, 6.25 percent
C)  16, 1.25 percent
D)  None of the above is correct.E) None of the above
F) All of the above

Question 15

If you know that Colorado Dreams Corporation,a travel equipment and clothing company,has revenues of $30 million and accounting costs of $10 million,you know their earnings are $20 million.

Accepted Answer

A) True 
 B)False

Question 16

Figure 26-1
 
-In Figure 26-1 which of the following would show the effects of the government going from a budget deficit to a surplus?

Accepted Answer

A)  a move from a to b
B)  a move from a to d
C)  a move from c to a
D)  a move from c to bE) A) and B)
F) A) and C)

Question 17

When the government budget deficit rises,national saving is reduced,interest rates rise,and investment falls.

Accepted Answer

A) True 
 B)False

Question 18

If the nominal interest rate is 10 percent and the inflation rate is 4 percent,then the real interest rate is

Accepted Answer

A)  14 percent.
B)  6 percent.
C)  2.5 percent.
D)  .4 percent.E) B) and C)
F) All of the above

Question 19

Which of the following is correct?

Accepted Answer

A)  The maturity of a bond refers to the amount to be paid back.
B)  The principal of the bond refers to the person selling the bond.
C)  A bond buyer cannot sell a bond before it matures.
D)  None of the above is correct.E) A) and B)
F) C) and D)

Question 20

When a country saves a larger portion of its GDP,it will have

Accepted Answer

A)  more capital and higher productivity.
B)  more capital and lower productivity.
C)  less capital and higher productivity.
D)  less capital and lower productivity.E) A) and B)
F) None of the above

Exam 26: Saving, investment, and the Financial System

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

Queen City Sausage stock is selling at $40 per share,it has retained earnings of $2.00 per share and dividends of $.50 per share.What is the price-earnings ratio and what is the dividend yield?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is 11,000,consumption is 7,500,and taxes are 2,000.What value of Government purchases would make national savings equal to 1000 and at that value would the government have a deficit or surplus?

Correct AnswerverifiedShow Answer

When the government budget deficit rises,national saving is reduced,interest rates rise,and investment falls.

Correct AnswerverifiedShow Answer

If the demand for loanable funds shifts left,the equilibrium interest rate

Correct AnswerverifiedShow Answer

Figure 26-1 -In Figure 26-1 which of the following would show the effects of the government going from a budget deficit to a surplus?

Correct AnswerverifiedShow Answer

Thomas Publishing has a price of $20 a share,outstanding shares of 2.5 million,retained earnings of $1 million dollars,and a dividend yield of 2 percent.It has a price to earnings ratio of

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Which of the following is correct?

Correct AnswerverifiedShow Answer

If the nominal interest rate is 10 percent and the inflation rate is 4 percent,then the real interest rate is

Correct AnswerverifiedShow Answer

If you know that Colorado Dreams Corporation,a travel equipment and clothing company,has revenues of $30 million and accounting costs of $10 million,you know their earnings are $20 million.

Correct AnswerverifiedShow Answer

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Correct AnswerverifiedShow Answer

When a country saves a larger portion of its GDP,it will have

Correct AnswerverifiedShow Answer

Suppose a closed economy had public saving of $3 trillion and private saving of $2 trillion.What is national saving and investment in this country?

Correct AnswerverifiedShow Answer

The ratio of government debt to GDP was higher during the Reagan Presidency than at any previous time in U.S.history.

Correct AnswerverifiedShow Answer

The amount of revenue a firm receives for the sale of its products minus its costs of production as measured by its accountants is the firm's

Correct AnswerverifiedShow Answer

Suppose that Congress were to repeal an investment tax credit.What would happen in the market for loanable funds?

Correct AnswerverifiedShow Answer

Suppose that 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

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if a government goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below,the economy ...View AnswerShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

You are required to testify before congress concerning the effects of an increase in the government surplus.Which is the correct thing to say?

Correct AnswerverifiedShow Answer

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Market for...
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As shown in the graph below,the economy ...
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