Question 1

The slope of the demand for loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment.
B)  negative relation between the real interest rate and investment.
C)  positive relation between the real interest rate and saving.
D)  negative relation between the real interest rate and saving.E) B) and C)
F) All of the above

Question 2

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Accepted Answer

A)  Kroger's plans to use equity financing and its action is part of the demand for loanable funds.
B)  Kroger's plans to use equity financing and its action is part of the supply of loanable funds.
C)  Kroger's plans to use debt financing and its action is part of the demand for loanable funds.
D)  Kroger's plans to use debt financing and its action is part of the supply of loanable funds.E) None of the above
F) All of the above

Question 3

​A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?

Accepted Answer

A)  ​Demand for the company's stock decreases, while the price of a share falls.
B)  ​Demand for the company's stock decreases, while the price of a share rises.
C)  ​Supply of the company's stock decreases, while the price of a share falls.
D)  ​supply of the company's stock decreases, while the price of a share falls.E) A) and D)
F) A) and C)

Question 4

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Accepted Answer

A reduction in transfer paymen...

Question 5

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) A) and D)
F) C) and D)

Question 6

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 7

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Accepted Answer

A)  the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.
B)  the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.
C)  both the demand for and supply of loanable funds are more elastic.
D)  both the demand for and supply of loanable funds are more inelastic.E) A) and C)
F) B) and C)

Question 8

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.

Accepted Answer

A) True 
 B)False

Question 9

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Question 10

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Question 11

If Congress instituted an investment tax credit, the interest rate would

Accepted Answer

A)  rise and saving would rise.
B)  fall and saving would fall.
C)  rise and saving would fall.
D)  fall and saving would rise.E) C) and D)
F) B) and D)

Question 12

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Accepted Answer

A)  the government has a budget surplus and investment is 1,000
B)  the government has a budget surplus and investment is 2,000
C)  the government has a budget deficit and investment is 1,000
D)  the government has a budget deficit and investment is 2,000E) B) and C)
F) A) and C)

Question 13

​Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

Accepted Answer

A)  will not buy the building.
B)  ​is more likely to buy the building.
C)  ​is less likely to buy the building.
D)  ​is just as likely to buy the building as before.E) C) and D)
F) B) and D)

Question 14

In 2009, the U.S. government's budget deficit increased substantially. 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) A) and B)
F) A) and C)

Question 15

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

Accepted Answer

A)  The demand for loanable funds would shift left.
B)  The supply of loanable funds would shift left.
C)  The demand for loanable funds would shift right.
D)  The supply of loanable funds would shift right.E) C) and D)
F) None of the above

Question 16

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 4 percent, the inflation rate is 2 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)    .
B)    .
C)  between  and  .
D)  to the left of  .E) B) and D)
F) None of the above

Question 17

The Dow Jones Industrial Average has been computed regularly since

Accepted Answer

A)  1976.
B)  1948.
C)  1913.
D)  1896.E) None of the above
F) All of the above

Question 18

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Accepted Answer

A)  the fund's managers
B)  the fund's shareholders
C)  the federal government
D)  the corporations that originally issued the stocks and/or bonds held by the fundE) B) and D)
F) A) and B)

Question 19

Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national
saving = $15,000.
-Refer to Scenario 26-1. For this economy, private saving amounts to

Accepted Answer

A)  $22,000.
B)  $18,000.
C)  $15,000.
D)  $37,000.E) B) and C)
F) A) and C)

Question 20

The two most important financial markets are the _____ market and the _____ market.

Accepted Answer

bond, stoc...

Exam 26: Saving, Investment, and the Financial System

A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?

Correct Answer
verified

The slope of the demand for loanable funds curve represents the

Correct Answer
verified

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct Answer
verified
The claim that an increase in the intere...
View Answer

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.

Correct Answer
verified

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Correct Answer
verified

Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

Correct Answer
verified

If Congress instituted an investment tax credit, the interest rate would

Correct Answer
verified

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct Answer
verified

The two most important financial markets are the _ market and the _ market.

Correct Answer
verified
bond, stoc...
View Answer

What is a bond buyer promised when she buys a bond?

Correct Answer
verified

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Correct Answer
verified

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Correct Answer
verified

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Correct Answer
verified

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

Correct Answer
verified

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct Answer
verified

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 Answer
verified

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, private saving amounts to

Correct Answer
verified

The Dow Jones Industrial Average has been computed regularly since

Correct Answer
verified

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Correct Answer
verified
A reduction in transfer paymen...
View Answer

Correct Answer
verified

Exam 26: Saving, Investment, and the Financial System

​A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?

Correct AnswerverifiedShow Answer

The slope of the demand for loanable funds curve represents the

Correct AnswerverifiedShow Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.

Correct AnswerverifiedShow Answer

Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.

Correct AnswerverifiedShow Answer

​Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit, the interest rate would

Correct AnswerverifiedShow Answer

A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when

Correct AnswerverifiedShow Answer

The two most important financial markets are the _____ market and the _____ market.

Correct Answerverifiedbond, stoc...View AnswerShow Answer

What is a bond buyer promised when she buys a bond?

Correct AnswerverifiedShow Answer

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

Correct AnswerverifiedShow Answer

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the

Correct AnswerverifiedShow Answer

In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then

Correct AnswerverifiedShow Answer

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

Correct AnswerverifiedShow Answer

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct AnswerverifiedShow Answer

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 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, private saving amounts to

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average has been computed regularly since

Correct AnswerverifiedShow Answer

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Correct AnswerverifiedA reduction in transfer paymen...View AnswerShow Answer

Correct AnswerverifiedShow Answer

A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
The claim that an increase in the intere...
View Answer

Correct Answer
verified

Correct Answer
verified

Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

The two most important financial markets are the _ market and the _ market.

Correct Answer
verified
bond, stoc...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
A reduction in transfer paymen...
View Answer

Correct Answer
verified