E202 Exam 2

A decrease in the price of a firm's stock would tell manager what?

Investors expect the firm to have lower profits in the future

What is not a loanable fund?

Real estate

The expression for the investment-saving equality

S = Y - C - G

A decrease in the price of a firm's bonds would tell managers what?

The cost of external funds has increased

The financial system, either financial markets or financial intermediaries, provides savers and borrowers with all of the following except:

The financial system provides security to savers by warranting that their funds are fully insured against loss

What is the effect of an increase in business taxes on the quantity of investment by firms and the economy's capital stock in the future?

The quantity of investment will decrease and the economy's future capital stock will decrease

It is essential for economic growth that firms have access to adequate sources of funds, because otherwise firms will not be

able to invest in capital, adopt new technologies, and expand

When the budget deficit increases,

both saving and investment decrease

If the federal government runs a budget surplus,

both saving and investment will increase

A shift of S to the left represents a ___ in the supply of loanable funds

decrease

With the left shift in supply, the equilibrium quantity of loanable funds

decreases

With the decrease in the equilibrium quantity of loanable funds, the quantity of saving ___ and the quantity of investment ___

decreases, decreases

A federal budget surplus ___ the equilibrium interest rate and ___ the quantity of loanable funds

decreases, increases

The financial system of a country is important for long-run economic growth because

firms need the financial system to acquire funds from households

Businesses demand loanable funds because

firms need to borrow funds for new projects, such as building new factories or carrying out new research projects

A flow of funds from savers to borrowers through financial intermediaries such as banks is ___ finance, while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is ___ finance

indirect, direct

Households supply loanable funds because of the

interest income received from the borrowers

A ___ is a financial security that represents partial ownership of a firm, while a ___ is a financial security that represents a promise to repay a fixed amount of funds

stock, bond