Question 1

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a. a U.S. government bond or a Venezuelan government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c. a 6-month Treasury bill or a 20-year Treasury bond
d. a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a. The Venezuelan government bond would ...

Question 2

Use the following table to answer the following questions.
Table 26-2
 
-Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Accepted Answer

A)   Boeing Co.
B)   Eli Lilly and Co.
C)   Kraft
D)   Kellogg Co.E) B) and C)
F) C) and D)

Question 3

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Accepted Answer

A)   low, indicating that buyers may expect earnings to rise.
B)   low, indicating that buyers may expect earnings to fall.
C)   high, indicating that buyers may expect earnings to rise.
D)   high, indicating that buyers may expect earnings to fall.E) C) and D)
F) A) and B)

Question 4

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 1. B)  D2. C)  between D1 and D2. D)  to the left of D1." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 4 percent, the inflation rate is 2 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)   D1.
B)   D2.
C)   between D1 and D2.
D)   to the left of D1.E) A) and B)
F) None of the above

Question 5

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Accepted Answer

A)   7 percent.
B)   4 percent.
C)   3 percent.
D)   10 percent.E) B) and C)
F) C) and D)

Question 6

The slope of the supply of loanable funds curve represents the

Accepted Answer

A)   positive relation between the real interest rate and investment.
B)   positive relation between the real interest rate and saving.
C)   negative relation between the real interest rate and investment.
D)   negative relation between the real interest rate and saving.E) C) and D)
F) All of the above

Question 7

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 1. B)  D2. C)  between D1 and D2. D)  to the right of D2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 8 percent, the inflation rate is 3 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)   D1.
B)   D2.
C)   between D1 and D2.
D)   to the right of D2.E) B) and C)
F) A) and C)

Question 8

The two most important financial markets are the _____ market and the _____ market.

Accepted Answer

bond, stoc...

Question 9

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A)   Private saving is equal to zero.
B)   Public saving is equal to zero.
C)   The economy's government is running neither a surplus nor a deficit.
D)   No restriction is necessary; saving and investment are equal for all closed economies.E) All of the above
F) None of the above

Question 10

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Accepted Answer

A)   both Midwestern corporation and Southern corporation
B)   Midwestern corporation but not Southern corporation
C)   Southern corporation but not Midwestern corporation
D)   neither Midwestern nor Southern corporationE) All of the above
F) B) and C)

Question 11

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Accepted Answer

A)   invest in physical capital.
B)   use equity finance.
C)   sell bonds.
D)   purchase bonds.E) C) and D)
F) A) and D)

Question 12

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Accepted Answer

A)   Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
B)   Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
C)   Bond A has a term of 1 year and Bond B has a term of 5 years.
D)   All of the above are correct.E) All of the above
F) C) and D)

Question 13

Which of the following statements is not correct?

Accepted Answer

A)   If GDP is rising faster than debt, the government is, in some sense, living within its means.
B)   The ratio of debt to GDP in the United States has always been less than one.
C)   Debts during wars may distribute the burden of fighting the war more evenly across generations.
D)   During times of peace in the United States, the ratio of debt to GDP sometimes rose.E) C) and D)
F) All of the above

Question 14

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Accepted Answer

A)   lower interest rates and lower investment.
B)   lower interest rates and greater investment.
C)   higher interest rates and lower investment.
D)   higher interest rates and higher investment.E) B) and C)
F) A) and C)

Question 15

Volume, as reported in stock tables, refers to the

Accepted Answer

A)   number of shares traded.
B)   percentage of shares outstanding traded.
C)   number of shares traded times the price they sold at.
D)   number of shares of a company traded divided by the shares of all companies traded.E) B) and D)
F) None of the above

Question 16

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)   a larger investment tax credit
B)   an expansion of eligibility for Individual Retirement Accounts
C)   an increase in income-tax rates, with no change in the government budget deficit or surplus
D)   an increase in government purchases, with no change in taxesE) B) and C)
F) All of the above

Question 18

A mutual fund

Accepted Answer

A)   is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
B)   is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community.
C)   sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit.
D)   is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.E) B) and D)
F) C) and D)

Question 19

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 1 to D2? 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." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

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) A) and D)
F) None of the above

Question 20

The bond market

Accepted Answer

A)   is a financial market, whereas the stock market is a financial intermediary.
B)   is a financial intermediary, whereas the stock market is a financial market.
C)   is a financial market, as is the stock market.
D)   is a financial intermediary, as is the stock market.E) A) and B)
F) A) and C)

Exam 8: Saving, Investment, and the Financial System

Which of the following statements is not correct?

Correct Answer
verified

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Correct Answer
verified

Correct Answer
verified

The two most important financial markets are the _ market and the _ market.

Correct Answer
verified
bond, stoc...
View Answer

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D₁ to D₂?

Correct Answer
verified

Volume, as reported in stock tables, refers to the

Correct Answer
verified

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Correct Answer
verified

The slope of the supply of loanable funds curve represents the

Correct Answer
verified

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Correct Answer
verified

A mutual fund

Correct Answer
verified

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct Answer
verified

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct Answer
verified

Correct Answer
verified

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct Answer
verified

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct Answer
verified

The bond market

Correct Answer
verified

Correct Answer
verified
a. The Venezuelan government bond would ...
View Answer

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Correct Answer
verified

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Correct Answer
verified

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Correct Answer
verified

Exam 8: Saving, Investment, and the Financial System

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Suppose Sarah Lee Corporation stock has a P/E ratio of 8. This P/E ratio is relatively

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The two most important financial markets are the _____ market and the _____ market.

Correct Answerverifiedbond, stoc...View AnswerShow Answer

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2?

Correct AnswerverifiedShow Answer

Volume, as reported in stock tables, refers to the

Correct AnswerverifiedShow Answer

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the loanable funds model, a consequence would be

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds curve represents the

Correct AnswerverifiedShow Answer

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is

Correct AnswerverifiedShow Answer

If people become less optimistic about the future earnings of Hyde Park Jazz Studio, then the price of the company's stock will fall.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Midwestern corporation issues bonds. Southern corporation issues stock. Which corporation used equity financing?

Correct AnswerverifiedShow Answer

We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that

Correct AnswerverifiedShow Answer

The bond market

Correct AnswerverifiedShow Answer

Correct Answerverifieda. The Venezuelan government bond would ...View AnswerShow Answer

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

Correct AnswerverifiedShow Answer

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest dollar dividend per share?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The two most important financial markets are the _ market and the _ market.

Correct Answer
verified
bond, stoc...
View Answer

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. -Refer to Figure 26-4. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D₁ to D₂?

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

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a. The Venezuelan government bond would ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified