Question 1

In a closed economy, what does (T - G)  represent?

Accepted Answer

A)   national saving
B)   investment
C)   private saving
D)   public savingE) C) and D)
F) B) and D)

Question 2

The indirect provision of funds by savers to borrowers is accomplished by

Accepted Answer

A)   banks and other financial markets.
B)   banks and other financial intermediaries.
C)   stock markets and other financial markets.
D)   All of the above are correct.E) B) and C)
F) B) and D)

Question 3

Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $1, and retained earnings of $2 a share. What was the price of a share of Mallard stock?

Accepted Answer

A)   $15
B)   $30
C)   $45
D)   None of the above is correct.E) A) and B)
F) B) and D)

Question 4

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

Accepted Answer

A)   an increase in the supply of or a decrease in the demand for loanable funds
B)   an increase in the supply of or an increase in the demand for loanable funds
C)   a decrease in the supply of or a decrease in the demand for loanable funds
D)   a decrease in the supply of or an increase in the demand for loanable fundsE) All of the above
F) B) and C)

Question 5

If the government's expenditures exceeded its receipts, it would likely

Accepted Answer

A)   lend money to a bank or other financial intermediary.
B)   borrow money from a bank or other financial intermediary.
C)   buy bonds directly from the public.
D)   sell bonds directly to the public.E) A) and C)
F) All of the above

Question 6

For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

Accepted Answer

A)   consumption
B)   taxes
C)   government purchases
D)   net exportsE) C) and D)
F) A) and B)

Question 7

Historically, the typical price-earnings ratio for stocks is about

Accepted Answer

A)   3
B)   8
C)   15
D)   26E) A) and D)
F) A) and C)

Question 8

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.E) B) and C)
F) None of the above

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

If the demand for loanable funds shifts to the left, then 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) C) and D)
F) B) and C)

Question 11

A high demand for a company's stock is an indication that

Accepted Answer

A)   the company is in need of funds.
B)   the company has recently sold a large quantity of bonds.
C)   people are optimistic about the company's future.
D)   people are pessimistic about the company's future.E) None of the above
F) C) and D)

Question 12

Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. GDP
$8) 7 trillion
Consumption Spending
$3) 2 trillion
Taxes Net of Transfers
$2) 7 trillion
Government Purchases
$3) 0 trillion

Accepted Answer

A)   $2.2 trillion
B)   $2.5 trillion
C)   $3.9 trillion
D)   $5.2 trillionE) None of the above
F) A) and B)

Question 13

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment ...

Question 14

Retained earnings are

Accepted Answer

A)   earnings of a company that are not paid out to stockholders.
B)   the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants.
C)   the single most important piece of information about a stock.
D)   computed by multiplying the dividend yield by the price of the stock.E) B) and D)
F) A) and D)

Question 15

Which of the following is not an important stock exchange in the United States?

Accepted Answer

A)   New York Stock Exchange
B)   American Stock Exchange
C)   Chicago Mercantile Exchange
D)   NASDAQE) None of the above
F) A) and D)

Question 16

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 17

Figure 8-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.
 1 to S2 is called A)  an increase in the supply of loanable funds. B)  an increase in the quantity of loanable funds supplied. C)  a decrease in the supply of loanable funds. D)  a decrease in the quantity of loanable funds supplied. " class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 8-3. A shift of the supply curve from S1 to S2 is called

Accepted Answer

A)   an increase in the supply of loanable funds.
B)   an increase in the quantity of loanable funds supplied.
C)   a decrease in the supply of loanable funds.
D)   a decrease in the quantity of loanable funds supplied.E) C) and D)
F) B) and C)

Question 18

A bond that never matures is known as a

Accepted Answer

A)   perpetuity.
B)   an intermediary bond.
C)   an indexed bond.
D)   a junk bond.E) None of the above
F) All of the above

Question 19

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)   There would be an increase in the amount of loanable funds borrowed.
B)   There would be a reduction in the amount of loanable funds borrowed.
C)   There would be no change in the amount of loanable funds borrowed.
D)   The change in loanable funds is uncertain.E) All of the above
F) A) and D)

Question 20

The prices of stock traded on exchanges are determined by

Accepted Answer

A)   the Corporate Stock Administration.
B)   the administrators of NASDAQ.
C)   the supply of, and demand for, the stock.
D)   All of the above are correct.E) All of the above
F) A) and B)

Exam 8: Saving, Investment, and the Financial System

In a closed economy, what does (T - G) represent?

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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

Historically, the typical price-earnings ratio for stocks is about

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

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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 supply curve from S1 to S2 is called

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Mallard Corporation had a price-earnings ratio of 15, paid a dividend of $1, and retained earnings of $2 a share. What was the price of a share of Mallard stock?

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

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Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. GDP $8) 7 trillion Consumption Spending $3) 2 trillion Taxes Net of Transfers $2) 7 trillion Government Purchases $3) 0 trillion

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A bond that never matures is known as a

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For an economy that engages in international trade, GDP is divided into four components. Which of the following items is not one of those components?

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A high demand for a company's stock is an indication that

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If the government's expenditures exceeded its receipts, it would likely

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The indirect provision of funds by savers to borrowers is accomplished by

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The prices of stock traded on exchanges are determined by

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

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Which of the following is not an important stock exchange in the United States?

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Retained earnings are

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Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

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Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct AnswerverifiedWhen the interest rate rises investment ...View AnswerShow 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 supply curve from S₁ to S₂ is called

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When the interest rate rises investment ...
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