Question 1

Higher education subsidies in the form of the federal government's student loan program

Accepted Answer

A)   induce more people to attend colleges and universities.
B)   keep interest rates low on student loans.
C)   cause lenders to take on more risk.
D)   All of the above are correct.E) None of the above
F) A) and B)

Question 2

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 3

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

Question 4

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)   the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
B)   Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston.
C)   Bond A has a term of 20 years and Bond B has a term of 2 years.
D)   All of the above are correct.E) B) and C)
F) None of the above

Question 5

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) C) and D)

Question 6

Public saving is T - G, while private saving is Y - T - C.

Accepted Answer

A) True 
 B)False

Question 7

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 8

Municipal bonds pay a relatively

Accepted Answer

A)   low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax.
B)   low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.
C)   high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay.
D)   high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.E) B) and C)
F) A) and C)

Question 9

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Accepted Answer

A)   the market for loanable funds is in equilibrium.
B)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will rise.
C)   the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will fall.
D)   the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.E) B) and C)
F) A) and C)

Question 10

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

Accepted Answer

A)   -500
B)   500
C)   2,000
D)   None of the above is correct.E) A) and D)
F) C) and D)

Question 11

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Accepted Answer

A) True 
 B)False

Question 12

Kathleen is considering expanding her dress shop. If interest rates rise she is

Accepted Answer

A)   less likely to expand. This illustrates why the supply of loanable funds slopes downward.
B)   more likely to expand. This illustrates why the supply of loanable funds slopes upward.
C)   less likely to expand. This illustrates why the demand for loanable funds slopes downward.
D)   more likely to expand. This illustrates why the demand for loanable funds slopes upward.E) A) and C)
F) A) and B)

Question 13

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

Question 14

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Accepted Answer

A)   only Larry's
B)   only Curly Corporation's
C)   Larry's and Curly Corporation's
D)   neither Larry's nor Curly Corporation'sE) B) and C)
F) A) and C)

Question 15

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 16

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

Accepted Answer

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

Question 17

Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Accepted Answer

A)   the interest rate and investment would rise.
B)   the interest rate would rise and investment would fall.
C)   the interest rate would fall and investment would rise.
D)   the interest rate and investment would fall.E) A) and B)
F) A) and C)

Question 18

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The demand for loana...

Question 19

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

Question 20

If an economy is closed and if it has no government, then

Accepted Answer

A)   national saving = private saving.
B)   total income = consumption + investment.
C)   saving = total income - consumption.
D)   All of the above are correct.E) All of the above
F) A) and C)

Exam 18: Saving, Investment, and the Financial System

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an act of investment in the language of macroeconomics?

Correct AnswerverifiedShow Answer

Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Correct AnswerverifiedThe demand for loana...View AnswerShow Answer

Kathleen is considering expanding her dress shop. If interest rates rise she is

Correct AnswerverifiedShow Answer

If an economy is closed and if it has no government, then

Correct AnswerverifiedShow Answer

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

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

Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving?

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

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?

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If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct AnswerverifiedShow Answer

Municipal bonds pay a relatively

Correct AnswerverifiedShow Answer

If the Apple corporation sells a bond it is

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Public saving is T - G, while private saving is Y - T - C.

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Higher education subsidies in the form of the federal government's student loan program

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For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

Correct AnswerverifiedShow Answer

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

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

What is the source of the supply of loanable funds?

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Which of the following is not correct?

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Suppose in some country that the first $5,000 of interest income is exempt from income tax. If the government then removed this exemption

Correct AnswerverifiedShow Answer

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Correct AnswerverifiedShow Answer

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The demand for loana...
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As shown in the graph below, the economy...
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