Question 1

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 would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A)  A movement from Point A to Point C
B)  A movement from Point B to Point A
C)  A movement from Point B to Point F
D)  A movement from Point F to Point BE) C) and D)
F) A) and C)

Question 2

What is the source of the supply of loanable funds?

Accepted Answer

The answer of What is the source of the supply...

Question 3

A larger budget deficit

Accepted Answer

A)  raises the interest rate and investment.
B)  reduces the interest rate and investment.
C)  raises the interest rate and reduces investment.
D)  reduces the interest rate and raises investment.E) B) and C)
F) All of the above

Question 4

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 5

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

Accepted Answer

The answer of A higher interest rate makes _____ more...

Question 6

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 7

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture, which manufactures wooden furniture. He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond.
a."I have reason to believe that people are soon going to find rocking chairs have health benefits."
b."I would like to tell people I am part owner of Cedar Valley Furniture."
c."I do not want to take on much risk."

Accepted Answer

a.
Presumably, when this happens, unless...

Question 8

Identify each of the following acts as representing either saving or investment.
a.Fred uses some of his income to buy government bonds.
b.Julie takes some of her income and buys mutual funds.
c.Alex purchases a new truck for his delivery business using borrowed funds.
d.Elaine uses some of her income to buy stock in a major corporation.
e.Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a.
Fred is saving.
b.
Julie is...

Question 9

If there is a surplus of loanable funds, then

Accepted Answer

A)  neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.
B)  the supply for loanable funds shifts right and the demand shifts left.
C)  the supply for loanable funds shifts left and the demand shifts right.
D)  neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.E) A) and B)
F) A) and D)

Question 10

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.a U.S.government bond or a Venezuelan government bond
b.a U.S.government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c.a 6-month Treasury bill or a 20-year Treasury bond
d.a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a.
The Venezuelan government bond would ...

Question 11

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Accepted Answer

A) True 
 B)False

Question 12

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Accepted Answer

A) True 
 B)False

Question 13

In a closed economy, each unit of output is either consumed by households or invested.

Accepted Answer

A) True 
 B)False

Question 14

​Index funds are financial intermediaries, but municipal bonds are not.

Accepted Answer

A) True 
 B)False

Question 15

If there is a surplus of loanable funds, then the quantity of loanable funds

Accepted Answer

A)  demanded is greater than the quantity of loanable funds supplied and the interest rate will rise.
B)  demanded is greater than the quantity of loanable funds supplied and the interest rate will fall.
C)  supplied is greater than the quantity of loanable funds demanded and the interest rate will fall.
D)  supplied is greater than the quantity of loanable funds demanded and the interest rate will rise.E) A) and B)
F) A) and C)

Question 16

Which of the following statements is correct?

Accepted Answer

A)  The total income minus consumption and government purchases is called private saving.
B)  The sum of private saving and national saving is called public saving.
C)  For a closed economy, the sum of consumption, national saving, and taxes must equal GDP.
D)  For a closed economy, the sum of private saving and public saving must equal investment.E) A) and D)
F) None of the above

Question 17

When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.

Accepted Answer

The answer of When tax code changes increase saving incentives,...

Question 18

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 19

Other things being constant, when a firm sells new shares of stock, the

Accepted Answer

A)  supply of the stock increases and the price decreases.
B)  supply of the stock decreases and the price increases.
C)  demand for the stock increases and the price increases.
D)  demand for the stock decreases and the price decreases.E) A) and C)
F) B) and D)

Question 20

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Accepted Answer

decrease, ...

Exam 26: Saving, Investment, and the Financial System

Correct Answer
verified
a.
Presumably, when this happens, unless...
View Answer

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Correct Answer
verified

Index funds are financial intermediaries, but municipal bonds are not.

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

Correct Answer
verified
a.
Fred is saving.
b.
Julie is...
View Answer

If there is a surplus of loanable funds, then the quantity of loanable funds

Correct Answer
verified

What is the source of the supply of loanable funds?

Correct Answer
verified

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

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 would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Correct Answer
verified

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

Correct Answer
verified
decrease, ...
View Answer

A larger budget deficit

Correct Answer
verified

Which of the following statements is correct?

Correct Answer
verified

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct Answer
verified

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Correct Answer
verified

Other things being constant, when a firm sells new shares of stock, the

Correct Answer
verified

If there is a surplus of loanable funds, then

Correct Answer
verified

In a closed economy, each unit of output is either consumed by households or invested.

Correct Answer
verified

The slope of the demand for loanable funds curve represents the

Correct Answer
verified

When tax code changes increase saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

Correct Answer
verified
a.
The Venezuelan government bond would ...
View Answer

Exam 26: Saving, Investment, and the Financial System

Correct Answerverifieda.Presumably, when this happens, unless...View AnswerShow Answer

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Correct AnswerverifiedShow Answer

​Index funds are financial intermediaries, but municipal bonds are not.

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

Correct Answerverifieda.Fred is saving.b.Julie is...View AnswerShow Answer

If there is a surplus of loanable funds, then the quantity of loanable funds

Correct AnswerverifiedShow Answer

What is the source of the supply of loanable funds?

Correct AnswerverifiedShow Answer

A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and investment to _____.

Correct Answerverifieddecrease, ...View AnswerShow Answer

A larger budget deficit

Correct AnswerverifiedShow Answer

Which of the following statements is correct?

Correct AnswerverifiedShow Answer

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Correct AnswerverifiedShow Answer

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Correct AnswerverifiedShow Answer

Other things being constant, when a firm sells new shares of stock, the

Correct AnswerverifiedShow Answer

If there is a surplus of loanable funds, then

Correct AnswerverifiedShow Answer

In a closed economy, each unit of output is either consumed by households or invested.

Correct AnswerverifiedShow Answer

The slope of the demand for loanable funds curve represents the

Correct AnswerverifiedShow Answer

When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.

Correct AnswerverifiedShow Answer

Correct Answerverifieda.The Venezuelan government bond would ...View AnswerShow Answer

Correct Answer
verified
a.
Presumably, when this happens, unless...
View Answer

Correct Answer
verified

Index funds are financial intermediaries, but municipal bonds are not.

Correct Answer
verified

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

Correct Answer
verified
a.
Fred is saving.
b.
Julie is...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An increase in the government budget deficit causes national saving to ___, the interest rate to _, and investment to ___.

Correct Answer
verified
decrease, ...
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

When tax code changes increase saving incentives, the interest rate will _ and investment will _.

Correct Answer
verified

Correct Answer
verified
a.
The Venezuelan government bond would ...
View Answer