Question 1

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the:

Accepted Answer

A)   real interest rate should fall.
B)   real interest rate should rise.
C)   impact on the real interest rate is indeterminate.
D)   real interest rate should not change.E) B) and C)
F) A) and B)

Question 2

People who buy shares in a firm have loaned money to the firm.

Accepted Answer

A) True 
 B)False

Question 3

If the government wants to increase the level of employment and real output, it could

Accepted Answer

A)   increase corporate income taxes.
B)   provide an investment tax credit.
C)   decrease expenditures on roads and schools.
D)   increase the personal income tax.E) A) and B)
F) All of the above

Question 4

If GDP = €1,000, consumption = €600, taxes = €100, and government purchases = €200, how much is saving and investment?

Accepted Answer

A)   saving = €300, investment = €300
B)   saving = €200, investment = €100
C)   saving = €100, investment = €200
D)   saving = €0, investment = €0
E)   saving = €200, investment = €200F) A) and D)
G) A) and C)

Question 5

The stock market is an institution that facilitates

Accepted Answer

A)   buying and selling of debt financing.
B)   the purchase and sale of company shares.
C)   the purchase and sale of investment funds.
D)   bank borrowing and lending.E) None of the above
F) C) and D)

Question 6

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Question 7

A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase the quantity demanded of loanable funds.

Accepted Answer

A) True 
 B)False

Question 8

The major advantage of investment funds is that

Accepted Answer

A)   they allow people with limited funds to diversify their investment.
B)   they encourage households to spend their money on current consumption.
C)   fund managers are replaced by household administrators.
D)   they always use index funds to limit investor risk.E) None of the above
F) B) and C)

Question 9

A financial intermediary is a middleperson between

Accepted Answer

A)   buyers and sellers.
B)   banks and the government.
C)   borrowers and lenders.
D)   labour unions and firms.E) B) and D)
F) C) and D)

Question 10

An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following financial market securities would probably pay the lowest interest rate?

Accepted Answer

A)   A bond issued by a start-up company
B)   A government bond issued by the government of France.
C)   A bond issued by a blue chip company
D)   An investment fund with a portfolio of corporate bonds issued by blue chip companies.E) A) and C)
F) None of the above

Question 12

Why were Collateralized Debt Obligations (CDOs) based on residential mortgages developed and why did they fail?

Accepted Answer

CDOs based on residential mortgages were developed in the early 21^st century when interest rates were low and investors were anxious to buy assets that offered better yields. Packaging up lots of sub-prime mortgages into CDOs seemed to be a way of reducing risk and providing attractive yields for investors. When interest rates started to rise, sub-prime mortgage borrowers began to default in large numbers, causing major problems for the CDOs based on them. It was this problem in the housing market that led to the crisis.

Question 13

Investment is the purchase of capital equipment and structures.

Accepted Answer

A) True 
 B)False  True

Question 14

An increase in the budget surplus shifts the

Accepted Answer

A)   supply of loanable funds to the left and increases the real interest rate.
B)   supply of loanable funds to the right and reduces the real interest rate.
C)   demand for loanable funds to the right and increases the real interest rate.
D)   demand for loanable funds to the left and reduces the real interest rate.E) B) and D)
F) B) and C)

Question 15

National saving (or just saving)  is equal to

Accepted Answer

A)   none of these answers.
B)   investment + consumption expenditures.
C)   private saving + public saving.
D)   GDP - government purchases.
E)   GDP + consumption expenditures + government purchases.F) A) and D)
G) A) and C)

Question 16

In a closed economy, saving is what remains after consumption expenditures and government purchases.

Accepted Answer

A) True 
 B)False

Question 17

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a. a German government bond or a Greek government bond
b. a 6-month Treasury bill or a 20-year Treasury bond
c. a Microsoft bond or a bond issued by a new recording company

Accepted Answer

a. The Greek government bond would likel...

Question 18

The quantity of loanable funds supplied is

Accepted Answer

A)   positively related to the level of income.
B)   negatively related to the price level.
C)   positively related to the price level.
D)   positively related to the interest rate.E) All of the above
F) A) and C) D

Question 19

A(n)  __________ allows a firm to decrease its tax liability by a fraction of the investment it makes during a particular period.

Accepted Answer

A)   tax on corporate profits
B)   tax on retained earnings
C)   investment tax credit
D)   personal income taxE) None of the above
F) B) and D)

Question 20

When interest rates rise, the quantity of loanable funds demanded by

Accepted Answer

A)   firms decreases.
B)   government decreases.
C)   firms increases.
D)   government increases.E) B) and C)
F) A) and D)

Exam 24: Saving, Investment and the Financial System

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the:

Correct Answer
verified

People who buy shares in a firm have loaned money to the firm.

Correct Answer
verified

If the government wants to increase the level of employment and real output, it could

Correct Answer
verified

If GDP = €1,000, consumption = €600, taxes = €100, and government purchases = €200, how much is saving and investment?

Correct Answer
verified

The stock market is an institution that facilitates

Correct Answer
verified

What are the basic differences between bonds and stocks?

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase the quantity demanded of loanable funds.

Correct Answer
verified

The major advantage of investment funds is that

Correct Answer
verified

A financial intermediary is a middleperson between

Correct Answer
verified

An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right.

Correct Answer
verified

Which of the following financial market securities would probably pay the lowest interest rate?

Correct Answer
verified

Why were Collateralized Debt Obligations (CDOs) based on residential mortgages developed and why did they fail?

Investment is the purchase of capital equipment and structures.

Correct Answer
verified
True

An increase in the budget surplus shifts the

Correct Answer
verified

National saving (or just saving) is equal to

Correct Answer
verified

In a closed economy, saving is what remains after consumption expenditures and government purchases.

Correct Answer
verified

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why. a. a German government bond or a Greek government bond b. a 6-month Treasury bill or a 20-year Treasury bond c. a Microsoft bond or a bond issued by a new recording company

Correct Answer
verified
a. The Greek government bond would likel...
View Answer

The quantity of loanable funds supplied is

Correct Answer
verified
D

A(n) __________ allows a firm to decrease its tax liability by a fraction of the investment it makes during a particular period.

Correct Answer
verified

When interest rates rise, the quantity of loanable funds demanded by

Correct Answer
verified

Exam 24: Saving, Investment and the Financial System

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the:

Correct AnswerverifiedShow Answer

People who buy shares in a firm have loaned money to the firm.

Correct AnswerverifiedShow Answer

If the government wants to increase the level of employment and real output, it could

Correct AnswerverifiedShow Answer

If GDP = €1,000, consumption = €600, taxes = €100, and government purchases = €200, how much is saving and investment?

Correct AnswerverifiedShow Answer

The stock market is an institution that facilitates

Correct AnswerverifiedShow Answer

What are the basic differences between bonds and stocks?

Correct AnswerverifiedA bond is a certificate of indebtedness ...View AnswerShow Answer

A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase the quantity demanded of loanable funds.

Correct AnswerverifiedShow Answer

The major advantage of investment funds is that

Correct AnswerverifiedShow Answer

A financial intermediary is a middleperson between

Correct AnswerverifiedShow Answer

An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right.

Correct AnswerverifiedShow Answer

Which of the following financial market securities would probably pay the lowest interest rate?

Correct AnswerverifiedShow Answer

Why were Collateralized Debt Obligations (CDOs) based on residential mortgages developed and why did they fail?

Investment is the purchase of capital equipment and structures.

Correct AnswerverifiedTrue

An increase in the budget surplus shifts the

Correct AnswerverifiedShow Answer

National saving (or just saving) is equal to

Correct AnswerverifiedShow Answer

In a closed economy, saving is what remains after consumption expenditures and government purchases.

Correct AnswerverifiedShow Answer

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why. a. a German government bond or a Greek government bond b. a 6-month Treasury bill or a 20-year Treasury bond c. a Microsoft bond or a bond issued by a new recording company

Correct Answerverifieda. The Greek government bond would likel...View AnswerShow Answer

The quantity of loanable funds supplied is

Correct AnswerverifiedD

A(n) __________ allows a firm to decrease its tax liability by a fraction of the investment it makes during a particular period.

Correct AnswerverifiedShow Answer

When interest rates rise, the quantity of loanable funds demanded by

Correct AnswerverifiedShow Answer

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A bond is a certificate of indebtedness ...
View Answer

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True

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a. The Greek government bond would likel...
View Answer

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D

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