Question 1

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

Accepted Answer

A)   The demand for loanable funds shifted rightward.
B)   The demand for loanable funds shifted leftward.
C)   The supply of loanable funds shifted rightward.
D)   The supply of loanable funds shifted leftward.

Question 2

Which of the following is an example of financial intermediation?

Accepted Answer

A)   John buys shares of stock issued by a fast food company.
B)   A foreign government buys bonds issued by the U.S.Treasury.
C)   Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
D)   None of the above is correct.

Question 3

In a closed economy,national saving is

Accepted Answer

A)   usually greater than investment.
B)   equal to investment.
C)   usually less than investment because of the leakage of taxes.
D)   always less than investment.

Question 4

Corporations receive no proceeds from the resale of their stock.

Accepted Answer

A) True 
 B)False

Question 5

In a closed economy,if Y,C,and T remained the same,an increase in G would reduce

Accepted Answer

A)   private saving and public saving.
B)   private saving but not public saving.
C)   public saving but not private saving.
D)   neither private nor public saving.

Question 6

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Accepted Answer

A) True 
 B)False

Question 7

A perpetuity is

Accepted Answer

A)   a financial intermediary that has existed throughout recorded history.
B)   an instrument of equity finance.
C)   a stock that pays dividends forever.
D)   a bond that pays interest forever.

Question 8

The sale of stocks

Accepted Answer

A)   and bonds to raise money is called debt finance.
B)   and bonds to raise money is called equity finance.
C)   to raise money is called debt finance,while the sale of bonds to raise funds is called equity finance.
D)   to raise money is called equity finance,while the sale of bonds to raise funds is called debt finance.

Question 9

If there is a shortage of loanable funds,then

Accepted Answer

A)   the quantity demanded is greater than the quantity supplied and the interest rate will rise.
B)   the quantity demanded is greater than the quantity supplied and the interest rate will fall.
C)   the quantity supplied is greater than the quantity demanded and the interest rate will rise.
D)   the quantity supplied is greater than the quantity demanded and the interest rate will fall.

Question 10

The supply of loanable funds slopes

Accepted Answer

A)   upward because an increase in the interest rate induces people to save more.
B)   downward because an increase in the interest rate induces people to save less.
C)   downward because an increase in the interest rate induces people to invest less.
D)   upward because an increase in the interest rate induces people to invest more.

Question 11

In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

Accepted Answer

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

Question 12

On a graph that depicts the market for loanable funds,the nominal interest rate is measured along the vertical axis.

Accepted Answer

A) True 
 B)False

Question 13

A closed economy does not

Accepted Answer

A)   trade with other economies.
B)   have free markets.
C)   allow financial intermediation.
D)   All of the above are correct.

Question 14

An increase in the budget deficit shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following expressions must be equal to national saving for a closed economy?

Accepted Answer

A)   Y - I - G - NX
B)   Y - C - G
C)   Y - I - C
D)   G + C - Y

Question 16

Other things the same,as the maturity of a bond becomes longer,the bond will pay

Accepted Answer

A)   a lower interest rate because it has less risk.
B)   a lower interest rate because it has more risk.
C)   a higher interest rate because it has more risk.
D)   the same interest rate,because there is no relationship between term and risk.

Question 17

A checking deposit functions as

Accepted Answer

A)   a medium of exchange and as a store of value.
B)   a medium of exchange,but not as a store of value.
C)   a store of value,but not as a medium of exchange.
D)   neither a medium of exchange nor as a store of value.

Question 18

A corporation's earnings are

Accepted Answer

A)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividends paid out.
B)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists minus the dividends paid out.
C)   the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.
D)   the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.

Question 19

For an imaginary closed economy,T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000.Then

Accepted Answer

A)   private saving = $10,000 and GDP = $54,000.
B)   private saving = $10,000 and GDP = $58,000.
C)   private saving = $12,000 and GDP = $67,000.
D)   private saving = $12,000 and GDP = $72,000.

Question 20

Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings.Other things the same we would expect

Accepted Answer

A)   the demand for existing shares of stock in this company to decrease,so the price would fall.
B)   the demand for existing shares of stock in this company to increase,so the price would rise.
C)   the supply of existing shares of stock in this company to decrease,so the price would fall.
D)   the supply of existing shares of stock in this company to increase,so the price would rise.

Exam 18: Saving,investment,and the Financial System

In a closed economy,national saving is

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An increase in the budget deficit shifts the demand for loanable funds to the right.

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In a closed economy,if Y,C,and T remained the same,an increase in G would reduce

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When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

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Nastech Pharmaceuticals announced it has developed a nasal spray that would reduce hunger cravings.Other things the same we would expect

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A corporation's earnings are

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Corporations receive no proceeds from the resale of their stock.

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For an imaginary closed economy,T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000.Then

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A perpetuity is

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In the late summer of 2005 some regions of the country were suffering from drought.What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

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

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A closed economy does not

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The sale of stocks

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Which of the following expressions must be equal to national saving for a closed economy?

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Other things the same,as the maturity of a bond becomes longer,the bond will pay

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The supply of loanable funds slopes

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On a graph that depicts the market for loanable funds,the nominal interest rate is measured along the vertical axis.

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If there is a shortage of loanable funds,then

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A checking deposit functions as

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Which of the following is an example of financial intermediation?

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