Question 1

Other things the same, which bond would you expect to pay the lowest interest rate?

Accepted Answer

A)  a bond issued by a state with a very good credit rating
B)  a bond issued by the U.S. government
C)  a bond issued by a fairly new company doing genetic research
D)  a bond issued by NabiscoE) A) and D)
F) A) and B)

Question 2

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Accepted Answer

municipal,...

Question 3

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Accepted Answer

A)  The demand for loanable funds shifted right.
B)  The demand for loanable funds shifted left.
C)  The supply of loanable funds shifted right.
D)  The supply of loanable funds shifted left.E) A) and B)
F) A) and C)

Question 4

Two of the economy's most important financial intermediaries are

Accepted Answer

A)  suppliers of funds and demanders of funds.
B)  banks and the bond market.
C)  the stock market and the bond market.
D)  banks and mutual funds.E) None of the above
F) A) and B)

Question 5

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. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Accepted Answer

A)  11 percent.
B)  approximately 6 percent.
C)  between 6 percent and 8 percent.
D)  between 11 percent and 13 percent.E) B) and D)
F) A) and C)

Question 6

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Accepted Answer

The interest rate is below its...

Question 7

Compared to short-term bonds, other things the same, long-term bonds generally have

Accepted Answer

A)  more risk and so they pay higher interest rates.
B)  less risk and so they pay lower interest rates.
C)  less risk and so they pay higher interest rates.
D)  about the same risk and so they pay about the same interest rate.E) C) and D)
F) All of the above

Question 8

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

Accepted Answer

A)  1890s.
B)  1930s.
C)  1950s.
D)  1970s.E) C) and D)
F) B) and D)

Question 9

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Accepted Answer

A)  the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls.
B)  the price of a share of stock in the Hudsucker corporation should rise as the demand for shares rises.
C)  the price of a share of stock in the Hudsucker corporation should decline as the supply of existing shares falls.
D)  the price of a share of stock in the Hudsucker corporation should rise as the supply of existing shares rises.E) A) and D)
F) None of the above

Question 10

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Accepted Answer

demand, ri...

Question 11

A _____ is a certificate of indebtedness and a _____ is a claim to partial ownership in a firm.

Accepted Answer

The answer of A _____ is a certificate of indebtedness...

Question 12

Which of the following statements is correct?

Accepted Answer

A)  Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange.
B)  Most buyers of stocks and bonds prefer those issued by large and familiar companies.
C)  Banks charge borrowers a slightly lower interest rate than they pay to depositors.
D)  None of the above is correct.E) C) and D)
F) A) and C)

Question 13

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)  In response to tax reform, firms are encouraged to invest more than they previously invested.
B)  In response to tax reform, households are encouraged to save more than they previously saved.
C)  Government goes from running a balanced budget to running a budget deficit.
D)  Any of the above events would shift the supply curve from S1 to S2.E) A) and C)
F) All of the above

Question 14

A mutual fund

Accepted Answer

A)  is a financial institution that stands between savers and borrowers.
B)  is a financial intermediary.
C)  allows people with small amounts of money to diversify their holdings.
D)  All of the above are correct.E) B) and C)
F) A) and D)

Question 15

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) B) and D)
F) All of the above

Question 16

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

Question 17

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) None of the above

Question 18

By definition, equity finance

Accepted Answer

A)  is accomplished when units of government sell bonds.
B)  is accomplished when firms sell bonds.
C)  is accomplished when firms sell shares of stock.
D)  involves "fair" interest rates or dividend yields.E) B) and C)
F) A) and B)

Question 19

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Accepted Answer

The supply of loanab...

Question 20

The country of Bienmundo does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Bienmundo amounts to $5 billion. What are consumption and investment in Bienmundo?

Accepted Answer

A)  $17 billion and $8 billion, respectively.
B)  $19 billion and $6 billion, respectively.
C)  $19 billion and $8 billion, respectively.
D)  $17 billion and $6 billion, respectively.E) B) and D)
F) None of the above

Exam 26: Saving, Investment, and the Financial System

In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,

Correct AnswerverifiedShow Answer

Late in the 2000-2009 decade, real estate prices in the U.S. fell by a greater percentage than they had fallen since the

Correct AnswerverifiedShow Answer

The country of Bienmundo does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Bienmundo amounts to $5 billion. What are consumption and investment in Bienmundo?

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

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Correct Answerverifieddemand, ri...View AnswerShow Answer

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

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Correct AnswerverifiedThe interest rate is below its...View AnswerShow Answer

If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does it shift, and what happens to the interest rate?

Correct AnswerverifiedThe supply of loanab...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

Compared to short-term bonds, other things the same, long-term bonds generally have

Correct AnswerverifiedShow Answer

By definition, equity finance

Correct AnswerverifiedShow Answer

A _____ is a certificate of indebtedness and a _____ is a claim to partial ownership in a firm.

Correct AnswerverifiedShow Answer

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answerverifiedmunicipal,...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. If the equilibrium quantity of loanable funds is $56 billion and if the rate of inflation is 5 percent, then the equilibrium nominal interest rate is

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

Other things the same, which bond would you expect to pay the lowest interest rate?

Correct AnswerverifiedShow Answer

Two of the economy's most important financial intermediaries are

Correct AnswerverifiedShow Answer

Figure 26-1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Correct AnswerverifiedShow Answer

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When tax code changes increase investment incentives, the ___ for loanable funds curve shifts to the _. This results in a(n) _ in the interest rate and a(n) ___ in investment.

Correct Answer
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demand, ri...
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The interest rate is below its...
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The supply of loanab...
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A _ is a certificate of indebtedness and a _ is a claim to partial ownership in a firm.

Correct Answer
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Bonds issued by state and local governments are called _ bonds. Bonds issued by financially shaky corporations are called _ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

Correct Answer
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municipal,...
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Correct Answer
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Correct Answer
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