Question 1

Lenders sell bonds,and borrowers buy them.

Accepted Answer

A) True 
 B)False

Question 2

What are junk bonds?

Accepted Answer

A)  Junk bonds are those that yield low interest rates.
B)  Junk bonds are those that never mature.
C)  Junk bonds refer to bonds that have been resold many times.
D)  Junk bonds are those issued by financially weak corporations.E) A) and C)
F) B) and C)

Question 3

Suppose that interest rates fall and investment falls.Which of the following best explains these changes?

Accepted Answer

A)  The government went from a surplus to a deficit.
B)  The government has repealed an investment tax credit.
C)  The government has replaced a consumption tax with an income tax.
D)  The government is allowing nontaxable savings deposits of up to $5000 per year.E) A) and D)
F) B) and D)

Question 4

Suppose that consumption is 7500,taxes are 1800,and government expenditures are 2200.If national saving is 1500 and the economy is closed,what is the GDP?

Accepted Answer

A)  9500
B)  10 000
C)  10 500
D)  11 200E) B) and D)
F) None of the above

Question 5

Which of the following bond buyers did NOT buy the bond that best met his or her objective?

Accepted Answer

A)  Mia wanted a bond with a high interest rate, regardless of the risk. She purchased a junk bond.
B)  Anna wanted the least risky bond available. She purchased a federal bond.
C)  Bill wanted to purchase a bond that was unlikely to default. He purchased a bond that Standard & Poor's rated a low credit risk.
D)  To reduce risk, Toby purchased a long-term bond rather than a short-term one.E) B) and C)
F) A) and C)

Question 6

Which of the following would NOT result from replacing the income tax with a consumption tax?

Accepted Answer

A)  The interest rate would decrease.
B)  Investment would decrease.
C)  The standard of living would eventually rise.
D)  The supply of loanable funds would shift right.E) All of the above
F) A) and B)

Question 7

Which of the following bonds would you expect to pay the highest interest rate?

Accepted Answer

A)  a bond issued by the federal government
B)  a bond issued by Bombardier
C)  a bond issued by Manitoba
D)  a bond issued by a new restaurant chainE) C) and D)
F) B) and D)

Question 8

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 9

Which of the following best describes the relationship between government deficit and government debt?

Accepted Answer

A)  If the government currently has a budget deficit, currently it must also have a debt.
B)  If the government currently has a budget deficit, the debt is increasing.
C)  If the government currently has a budget deficit, government expenditures must be less than taxes.
D)  If the government currently has a budget deficit, national savings must be higher.E) B) and D)
F) A) and D)

Question 10

Which of the following best explains why the debt-to-GDP ratio is important?

Accepted Answer

A)  If GDP is rising slower than debt, the government is, in some sense, living within its means.
B)  A declining debt-to-GDP ratio raises concerns about a country's financial difficulties.
C)  It is a better measure than the level of debt because it takes into account a country's net exports.
D)  It allows international comparisons of how indebted countries are.E) A) and B)
F) A) and D)

Question 11

Lucy wants to start her own psychiatric practice,but her expenditures exceed her income.Which of the following best describes Lucy?

Accepted Answer

A)  She is a saver who demands money from the financial system.
B)  She is a saver who supplies money to the financial system.
C)  She is a borrower who demands money from the financial system.
D)  She is a borrower who supplies money to the financial system.E) None of the above
F) A) and C)

Question 12

Mount Adams Jazz Corporation has a price of $50,a dividend of $0.60,and retained earnings of $1.00 per share.What is the dividend yield on this stock?

Accepted Answer

A)  3.2 percent
B)  2 percent
C)  1.2 percent
D)  0.8 percentE) C) and D)
F) A) and B)

Question 13

If the government's expenditures exceeded its receipts,what would it most likely do?

Accepted Answer

A)  It would lend money to a bank or other financial intermediary.
B)  It would borrow money from a bank or other financial intermediary.
C)  It would directly buy bonds from the public.
D)  It would directly sell bonds to the public.E) B) and C)
F) None of the above

Question 14

Which of the following best defines a closed economy?

Accepted Answer

A)  an economy that does not trade with other economies
B)  an economy that does not have free markets
C)  an economy that does not allow immigration
D)  an economy that does not growE) A) and B)
F) None of the above

Question 15

In a closed economy,investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 16

What is a medium of exchange?

Accepted Answer

A)  a stock exchange company
B)  an item that makes transactions easier
C)  a financial market
D)  a stock or bondE) None of the above
F) A) and B)

Question 17

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.Which of the following would we expect?

Accepted Answer

A)  This would raise the demand for existing shares of the stock, causing its price to rise.
B)  This would decrease the demand for existing shares of the stock, causing its price to fall.
C)  This would raise the supply of the existing shares of stock, causing its price to rise.
D)  This would raise the supply of the existing shares of stock, causing its price to fall.E) A) and C)
F) A) and B)

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

In the national income accounting identity showing the equality between national saving and investment,what is the representation of private saving and what is the representation of public saving?

Accepted Answer

Starting with Y = C + I + G,subtract C a...

Question 20

Which of the following is a secondary advantage of mutual funds?

Accepted Answer

A)  They allow an investor to avoid investment charges and fees.
B)  They give ordinary people access to loanable funds for investing.
C)  They usually outperform stock market indexes.
D)  They give ordinary people access to the skills of professional money managers.E) B) and D)
F) A) and D)

Exam 8: Saving,Investment,and the Financial System

In the national income accounting identity showing the equality between national saving and investment,what is the representation of private saving and what is the representation of public saving?

Correct AnswerverifiedStarting with Y = C + I + G,subtract C a...View AnswerShow Answer

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs.Which of the following would we expect?

Correct AnswerverifiedShow Answer

Suppose that consumption is 7500,taxes are 1800,and government expenditures are 2200.If national saving is 1500 and the economy is closed,what is the GDP?

Correct AnswerverifiedShow Answer

Which of the following is a secondary advantage of mutual funds?

Correct AnswerverifiedShow Answer

In a closed economy,investment must be equal to private saving.

Correct AnswerverifiedShow Answer

Which of the following best describes the relationship between government deficit and government debt?

Correct AnswerverifiedShow Answer

Which of the following best explains why the debt-to-GDP ratio is important?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following bonds would you expect to pay the highest interest rate?

Correct AnswerverifiedShow Answer

If the government's expenditures exceeded its receipts,what would it most likely do?

Correct AnswerverifiedShow Answer

Lucy wants to start her own psychiatric practice,but her expenditures exceed her income.Which of the following best describes Lucy?

Correct AnswerverifiedShow Answer

Mount Adams Jazz Corporation has a price of $50,a dividend of $0.60,and retained earnings of $1.00 per share.What is the dividend yield on this stock?

Correct AnswerverifiedShow Answer

Suppose that interest rates fall and investment falls.Which of the following best explains these changes?

Correct AnswerverifiedShow Answer

What is a medium of exchange?

Correct AnswerverifiedShow Answer

What are junk bonds?

Correct AnswerverifiedShow Answer

Lenders sell bonds,and borrowers buy them.

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 would NOT result from replacing the income tax with a consumption tax?

Correct AnswerverifiedShow Answer

Which of the following best defines a closed economy?

Correct AnswerverifiedShow Answer

Which of the following bond buyers did NOT buy the bond that best met his or her objective?

Correct AnswerverifiedShow Answer

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Starting with Y = C + I + G,subtract C a...
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As shown in the graph below,the economy ...
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