Question 1

Which of the following equations represents GDP for an open economy?

Accepted Answer

A)   Y = C + I + G + NX
B)   NX = I - G
C)   I = Y - C + G + NX
D)   Y = C + I + GE) All of the above
F) A) and B)

Question 2

If the tax revenue of the federal government exceeds spending, then the government necessarily

Accepted Answer

A)   runs a budget deficit.
B)   runs a budget surplus.
C)   runs a national debt.
D)   will increase taxes.E) A) and D)
F) B) and C)

Question 3

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 4

After a corporation issues stock, the stock

Accepted Answer

A)   can not be resold.
B)   can be resold only if the corporation wants to buy it back.
C)   can be resold on exchanges; the resale will raise additional funds for the corporation.
D)   None of the above are correct.E) B) and C)
F) All of the above

Question 5

Scenario 8-1. Assume the following information for an imaginary, closed economy.
 
-Refer to Scenario 8-1. For this economy, taxes amount to

Accepted Answer

A)   $28,000.
B)   $38,000.
C)   $41,000.
D)   $44,000.E) A) and D)
F) B) and C)

Question 6

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Accepted Answer

A)   borrowing directly.
B)   borrowing indirectly.
C)   lending directly.
D)   lending indirectly.E) C) and D)
F) A) and B)

Question 7

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

Accepted Answer

A) True 
 B)False

Question 8

The first three elements of a financial crisis are correctly represented as taking place in the following order:

Accepted Answer

A)   large decline in some asset prices  →\rightarrow→  insolvencies at financial institutions  →\rightarrow→ decline in confidence in financial institutions
B)   insolvencies at financial institutions  →\rightarrow→ decline in confidence in financial institutions  →\rightarrow→ large decline in some asset prices
C)   insolvencies at financial institutions  →\rightarrow→ economic downturn  →\rightarrow→ credit crunch
D)   insolvencies at financial institutions  →\rightarrow→ credit crunch  →\rightarrow→ economic downturn E) A) and B)
F) None of the above

Question 9

Other things the same, a government budget deficit

Accepted Answer

A)   reduces public saving, but not national saving.
B)   reduces national saving, but not public saving.
C)   reduces both public and national saving.
D)   reduces neither public saving nor national saving.E) All of the above
F) A) and D)

Question 10

Which of the following restrictions implies that saving and investment are equal for a closed economy?

Accepted Answer

A)   Private saving is equal to zero.
B)   Public saving is equal to zero.
C)   The economy's government is running neither a surplus nor a deficit.
D)   No restriction is necessary; saving and investment are equal for all closed economies.E) B) and C)
F) None of the above

Question 11

In the first part of the decade that began in 2000, the U.S. government went from a surplus to a deficit. Other things the same, this means the

Accepted Answer

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

Question 12

Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

Accepted Answer

A) True 
 B)False

Question 13

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Accepted Answer

A) True 
 B)False

Question 14

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

Accepted Answer

A)   both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall.
B)   both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise.
C)   the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall.
D)   the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.E) B) and D)
F) All of the above

Question 15

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) None of the above
F) B) and C)

Question 16

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

Accepted Answer

A)   there is a surplus and the interest rate is above the equilibrium level.
B)   there is a surplus and the interest rate is below the equilibrium level.
C)   there is a shortage and the interest rate is above the equilibrium level.
D)   there is a shortage and the interest rate is below the equilibrium level.E) A) and D)
F) B) and D)

Question 17

If there is a shortage of loanable funds, then

Accepted Answer

A)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
B)   the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
C)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
D)   the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.E) None of the above
F) All of the above

Question 18

Scenario 8-2. Assume the following information for an imaginary, closed economy.
GDP = $200,000; consumption = $120,000;
government purchases = $35,000; and taxes = $25,000.
-Refer to Scenario 8-2. For this economy, national saving is equal to

Accepted Answer

A)   $30,000.
B)   $35,000.
C)   $45,000.
D)   $60,000.E) B) and C)
F) A) and D)

Question 19

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Accepted Answer

A)   the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)   the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)   the city's high credit rating contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)   the city's high credit rating contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.E) A) and B)
F) A) and C)

Question 20

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Accepted Answer

A) True 
 B)False

Exam 8: Saving, Investment, and the Financial System

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

Correct AnswerverifiedShow Answer

Scenario 8-1. Assume the following information for an imaginary, closed economy. -Refer to Scenario 8-1. For this economy, taxes amount to

Correct AnswerverifiedShow Answer

If the tax revenue of the federal government exceeds spending, then the government necessarily

Correct AnswerverifiedShow Answer

In the first part of the decade that began in 2000, the U.S. government went from a surplus to a deficit. Other things the same, this means the

Correct AnswerverifiedShow Answer

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

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By definition, equity finance

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Other things the same, a government budget deficit

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All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

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

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Because of differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

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Which of the following equations represents GDP for an open economy?

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After a corporation issues stock, the stock

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As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

Correct AnswerverifiedShow Answer

Scenario 8-2. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. -Refer to Scenario 8-2. For this economy, national saving is equal to

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The first three elements of a financial crisis are correctly represented as taking place in the following order:

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If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

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If there is a shortage of loanable funds, then

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Which of the following restrictions implies that saving and investment are equal for a closed economy?

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Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds,

Correct AnswerverifiedShow Answer

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