Question 1

Which of the following is correct?

Accepted Answer

A)   The maturity of a bond refers to the amount to be paid back.
B)   The principal of the bond refers to the person selling the bond.
C)   A bond buyer cannot sell a bond before it matures.
D)   None of the above is correct.E) B) and D)
F) A) and B)

Question 2

Other things the same, an increase in taxes with no change in government purchases makes national saving

Accepted Answer

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

Question 3

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

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

Question 6

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 C)

Question 7

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Accepted Answer

A)   raise national saving and public saving.
B)   raise national saving and raise public saving.
C)   leave national saving and public saving unchanged.
D)   leave national saving unchanged and raise public saving.E) None of the above
F) A) and B)

Question 8

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A)   supply of existing shares of the stock and the price will both rise.
B)   supply of existing shares of the stock and the price will both fall.
C)   demand for existing shares of the stock and the price will both rise.
D)   demand for existing shares of the stock and the price will both fall.E) None of the above
F) B) and D)

Question 9

Which of the following statements is correct?

Accepted Answer

A)   A general, persistent decline in stock prices may signal that the economy is about to enter a boom period because people will be able to buy stock for less money.
B)   A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
C)   A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices mean that corporations have had low profits in the past.
D)   Expectations about the business cycle have no impact on stock prices.E) A) and B)
F) None of the above

Question 10

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Accepted Answer

A) True 
 B)False

Question 11

The price of a stock will rise if

Accepted Answer

A)   the managers of a stock exchange decide the price should be higher.
B)   the demand for the stock rises.
C)   the supply of the stock rises.
D)   None of the above are correct.E) None of the above
F) All of the above

Question 12

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Accepted Answer

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.E) A) and B)
F) A) and C)

Question 13

Mutual funds are a type of financial intermediary.

Accepted Answer

A) True 
 B)False

Question 14

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Accepted Answer

A)   credit risk.
B)   interest risk.
C)   term risk.
D)   private risk.E) A) and C)
F) B) and C)

Question 15

The country of Meditor, a small country with a closed economy, uses the merit as its currency. Recent national income statistics showed that it had GDP of $600 million merits, no government transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and investment of $100 billion merits. What were its consumption and government expenditures on goods and services?

Accepted Answer

A)   $460 million merits and $150 million merits
B)   $310 million merits and $190 million merits
C)   $350 million merits and $190 million merits
D)   $390 million merits and $110 million meritsE) All of the above
F) B) and D)

Question 16

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 17

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A)   The government goes from a surplus to a deficit.
B)   The government repeals an investment tax credit.
C)   The government replaces a consumption tax with an income tax.
D)   None of the above is correct.E) None of the above
F) A) and B)

Question 18

Suppose that you are a broker and people tell you the following about themselves. What sort of bond would you recommend to each? Defend your choices.
a. "I am in a high federal income tax bracket and I don't want to take very much risk."
b. "I want a high return and I am willing to take a lot of risk to get it."
c. "I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

a. A municipal bond. Municipal bonds gen...

Question 19

Short-term bonds are generally

Accepted Answer

A)   less risky than long-term bonds and so they feature higher interest rates.
B)   less risky than long-term bonds and so they feature lower interest rates.
C)   more risky than long-term bonds and so they feature higher interest rates.
D)   more risky than long-term bonds and so they feature lower interest rates.E) C) and D)
F) A) and C)

Question 20

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Accepted Answer

A)   a movement from Point A to Point B
B)   a movement from Point B to Point A
C)   a movement from Point A to Point F
D)   a movement from Point B to Point CE) B) and C)
F) A) and D)

Exam 26: Saving, Investment, and the Financial System

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 Answer
verified

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Correct Answer
verified

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Correct Answer
verified

The price of a stock will rise if

Correct Answer
verified

If the Apple corporation sells a bond it is

Correct Answer
verified

Which of the following is correct?

Correct Answer
verified

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Correct Answer
verified

Other things the same, an increase in taxes with no change in government purchases makes national saving

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Correct Answer
verified

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Correct Answer
verified

Short-term bonds are generally

Correct Answer
verified

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct Answer
verified

Mutual funds are a type of financial intermediary.

Correct Answer
verified

Interest rates fall and investment falls. Which of the following could explain these changes?

Correct Answer
verified

Correct Answer
verified
a. A municipal bond. Municipal bonds gen...
View Answer

Exam 26: Saving, Investment, and the Financial System

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

If the supply of loanable funds shifts to the right, then the equilibrium interest rate

Correct AnswerverifiedShow Answer

The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called

Correct AnswerverifiedShow Answer

The price of a stock will rise if

Correct AnswerverifiedShow Answer

If the Apple corporation sells a bond it is

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

If a share of stock in Dell sells for $70, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 10.

Correct AnswerverifiedShow Answer

Other things the same, an increase in taxes with no change in government purchases makes national saving

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Correct AnswerverifiedShow Answer

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?

Correct AnswerverifiedShow Answer

Short-term bonds are generally

Correct AnswerverifiedShow Answer

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

Correct AnswerverifiedShow Answer

Mutual funds are a type of financial intermediary.

Correct AnswerverifiedShow Answer

Interest rates fall and investment falls. Which of the following could explain these changes?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. A municipal bond. Municipal bonds gen...View AnswerShow Answer

Correct Answer
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Correct Answer
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Correct Answer
verified
a. A municipal bond. Municipal bonds gen...
View Answer