Question 1

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Question 2

In macroeconomics, _____ refers to the purchase of new capital.

Accepted Answer

investment

Question 3

Which of the following statements about the term of a bond is correct?

Accepted Answer

A)  Term refers to the various characteristics of a bond, including its interest rate and tax treatment.
B)  The term of a bond is determined entirely by its credit risk.
C)  The term of a bond is determined entirely by how much sales commission the buyer of the bond pays when he or she purchases the bond.
D)  Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.E) A) and B)
F) B) and D)

Question 4

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds, the city's high credit rating

Accepted Answer

A)  and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)  and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)  contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)  contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.E) A) and C)
F) All of the above

Question 5

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Accepted Answer

Its price to earnings ratio is...

Question 6

If the Apple corporation sells a bond it is

Accepted Answer

A)  borrowing directly from the public.
B)  borrowing indirectly from the public.
C)  selling shares of ownership directly to the public.
D)  selling shares of ownership indirectly to the public.E) All of the above
F) C) and D)

Question 7

Lenders buy bonds and borrowers sell them.

Accepted Answer

A) True 
 B)False  True

Question 8

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Accepted Answer

A)  crowding out would not be a consequence of an increase in the budget deficit.
B)  higher interest rates would not be a consequence of an increase in the budget deficit.
C)  an increase in the budget deficit would cause the demand for loanable funds to decrease.
D)  we would be making only a semantic change in how we analyze the effects of government budget deficits.E) A) and C)
F) A) and B)

Question 9

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Question 10

Refer to Scenario 26-1. For this economy, private saving amounts to

Accepted Answer

A)  $6,000.
B)  $26,000.
C)  $13,000.
D)  −$26,000.E) C) and D)
F) A) and C) B

Question 11

Other things the same, when the interest rate falls, people would want to lend

Accepted Answer

A)  less, making the supply of loanable funds increase.
B)  more, making the supply of loanable funds decrease.
C)  less, making the quantity of loanable funds supplied decrease.
D)  more, making the quantity of loanable funds supplied increase.E) A) and B)
F) B) and C)

Question 12

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

Accepted Answer

A) True 
 B)False

Question 13

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

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

Question 14

We associate the term debt finance with

Accepted Answer

A)  the bond market, and we associate the term equity finance with the stock market.
B)  the stock market, and we associate the term equity finance with the bond market.
C)  financial intermediaries, and we associate the term equity finance with financial markets.
D)  financial markets, and we associate the term equity finance with financial intermediaries.E) B) and C)
F) C) and D)

Question 15

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

Accepted Answer

A) True 
 B)False

Question 16

You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

Accepted Answer

A)  The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower.
B)  The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher.
C)  Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone.
D)  Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone.E) C) and D)
F) A) and C)

Question 17

What variable adjusts to balance demand and supply in the market for loanable funds?

Accepted Answer

The real i...

Question 18

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Accepted Answer

A) True 
 B)False

Question 19

A bond that never matures is known as

Accepted Answer

A)  a perpetuity.
B)  an intermediary bond.
C)  an indexed bond.
D)  a junk bond.E) All of the above
F) C) and D)

Question 20

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Accepted Answer

A)  Both Altas' sound finances and the long term of the bond.
B)  Atlas' sound finances but not the long term of the bond.
C)  The long term of the bond but not Atlas' sound finances.
D)  Neither Atlas' sound finances nor the long term of the bond.E) A) and B)
F) All of the above

Exam 26: Saving, Investment, and the Financial System

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Correct Answer
verified

In macroeconomics, _____ refers to the purchase of new capital.

Correct Answer
verified
investment

Which of the following statements about the term of a bond is correct?

Correct Answer
verified

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds, the city's high credit rating

Correct Answer
verified

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Correct Answer
verified
Its price to earnings ratio is...
View Answer

If the Apple corporation sells a bond it is

Correct Answer
verified

Lenders buy bonds and borrowers sell them.

Correct Answer
verified
True

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Correct Answer
verified

What are the basic differences between bonds and stocks?

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

Refer to Scenario 26-1. For this economy, private saving amounts to

Correct Answer
verified
B

Other things the same, when the interest rate falls, people would want to lend

Correct Answer
verified

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

Correct Answer
verified

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Correct Answer
verified

We associate the term debt finance with

Correct Answer
verified

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

Correct Answer
verified

Correct Answer
verified

What variable adjusts to balance demand and supply in the market for loanable funds?

Correct Answer
verified
The real i...
View Answer

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct Answer
verified

A bond that never matures is known as

Correct Answer
verified

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Correct AnswerverifiedShow Answer

In macroeconomics, _____ refers to the purchase of new capital.

Correct Answerverifiedinvestment

Which of the following statements about the term of a bond is correct?

Correct AnswerverifiedShow Answer

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds, the city's high credit rating

Correct AnswerverifiedShow Answer

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

Correct AnswerverifiedIts price to earnings ratio is...View AnswerShow Answer

If the Apple corporation sells a bond it is

Correct AnswerverifiedShow Answer

Lenders buy bonds and borrowers sell them.

Correct AnswerverifiedTrue

If we were to change the interpretation of the term "loanable funds" in such a way that government budget deficits would affect the demand for loanable funds, rather than the supply of loanable funds, then

Correct AnswerverifiedShow Answer

What are the basic differences between bonds and stocks?

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

Refer to Scenario 26-1. For this economy, private saving amounts to

Correct AnswerverifiedB

Other things the same, when the interest rate falls, people would want to lend

Correct AnswerverifiedShow Answer

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

Correct AnswerverifiedShow Answer

In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?

Correct AnswerverifiedShow Answer

We associate the term debt finance with

Correct AnswerverifiedShow Answer

In a closed economy, if taxes fall and consumption rises, then private saving must fall.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What variable adjusts to balance demand and supply in the market for loanable funds?

Correct AnswerverifiedThe real i...View AnswerShow Answer

When an economy's government goes from running a budget deficit to running a budget surplus, the economy's long-run growth prospects are improved.

Correct AnswerverifiedShow Answer

A bond that never matures is known as

Correct AnswerverifiedShow Answer

Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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investment

Correct Answer
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Correct Answer
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Correct Answer
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Its price to earnings ratio is...
View Answer

Correct Answer
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Correct Answer
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True

Correct Answer
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Correct Answer
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A bond is a certificate of indebtedness ...
View Answer

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The real i...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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