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World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would


A) raise the demand for existing shares of the stock, causing the price to rise.
B) decrease the demand for existing shares of the stock, causing the price to fall.
C) raise the supply of the existing shares of stock, causing the price to rise.
D) raise the supply of the existing shares of stock, causing the price to fall.

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The source of the supply of loanable funds


A) is saving and the source of demand for loanable funds is investment.
B) is investment and the source of demand for loanable funds is saving.
C) and the demand for loanable funds is saving.
D) and the demand for loanable funds is investment.

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What is a mutual fund?

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An institution that sells shar...

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Owners of municipal bonds


A) are not required to pay federal income tax on the interest income.
B) usually receive a higher interest rate compared to bonds issued by corporations.
C) usually receive a higher interest rate compared to stock issued by corporations.
D) pay taxes on the dividends earned from these bonds.

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If the demand for loanable funds shifts to the right, then the equilibrium interest rate


A) and quantity of loanable funds rises.
B) and quantity of loanable funds falls.
C) rises and the quantity of loanable funds falls.
D) falls and the quantity of loanable funds rises.

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What are the basic differences between bonds and stocks?

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A bond is a certificate of indebtedness ...

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When the government goes from running a balanced budget to running a budget surplus,


A) national saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to decrease.
B) national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to decrease.
C) national saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to increase.
D) national saving increases, the interest rate falls, and the economy's long-run growth rate is likely to increase.

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If Congress instituted an investment tax credit


A) it would make buying bonds more desirable, so the demand for loanable funds would shift.
B) it would make buying capital goods more desirable, so the demand for loanable funds would shift.
C) it would make buying bonds more desirable, so the supply of loanable funds would shift.
D) it would make buying capital goods more desirable, so the supply of loanable funds would shift.

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Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is


A) 2.8 percent.
B) 2.0 percent.
C) 1.6 percent.
D) 0.4 percent.

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The first element of a financial crisis is


A) inflation.
B) a decline in confidence in financial institutions.
C) a relaxation of rules and regulations that pertain to the financial system.
D) a large decline in some asset prices.

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

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Which of the following events could explain a decrease in interest rates together with an increase in investment?


A) The government went from surplus to deficit.
B) The government instituted an investment tax credit.
C) The government reduced the tax rate on savings.
D) None of the above is correct.

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


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 corporation

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Scenario 26-2. Assume the following information for an imaginary, closed economy. GDP = $5 trillion; consumption = $3.1 trillion; government purchases = $0.7 trillion; and taxes = $0.9 trillion. -Refer to Scenario 26-2. Suppose, for this economy, the relationship between the real interest rate, r, and investment, I, is given by the equation I = 10.78 - 3.03r. (If, for example, r = 10, this means that the real interest rate is 10 percent.) The equilibrium real interest rate for this economy is


A) 3.19 percent.
B) 3.00 percent.
C) 3.16 percent.
D) 7.14 percent.

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Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?


A) only Jim's
B) only ABC Corporation's
C) Jim's and ABC Corporation's
D) neither Jim's nor ABC Corporation's

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​The price-earnings ratio for Wavina Coporation increased from 15 to 17. This suggests that


A) ​the stock might be overvalued.
B) ​people expect earnings to decline in the future.
C) ​the stock is cheap.
D) people expect share prices to fall.

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The economy's two most important financial markets are


A) the investment market and the saving market.
B) the bond market and the stock market.
C) banks and the stock market.
D) financial markets and financial institutions.

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Rank the following in order of highest to lowest interest rate:


A) ​1 year AAA municipal bond, 1 year AA municipal bond, 1 year corporate bond, 5 year corporate bond
B) ​5 year corporate bond, 1 year corporate bond, 1 year AAA municipal bond, 1 year AA municipal bond
C) 5 year corporate bond, 1 year corporate bond, 1 year AA municipal bond, 1 year AAA municipal bond
D) ​1 year AA municipal bond, 1 year AAA municipal bond, 1 year corporate bond, 5 year corporate bond

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A creditor of a corporation holds


A) bonds sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
B) bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.
C) stocks sold by the corporation. If the corporation experiences financial difficulties stock holders are paid before bond holders.
D) stocks sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders.

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Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 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. 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 A) . B) . C) between and . D) to the right of . -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


A) 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. 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 A) . B) . C) between and . D) to the right of . .
B) 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. 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 A) . B) . C) between and . D) to the right of . .
C) between 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. 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 A) . B) . C) between and . D) to the right of . and 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. 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 A) . B) . C) between and . D) to the right of . .
D) to the right of 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. 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 A) . B) . C) between and . D) to the right of . .

Correct Answer

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