Econ 1 Chapter 13

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the.....

Demand for existing shares of the stock and the price will both fall.

Index funds typically have a....

Higher rate of return and lower costs than managed mutual fund.

Morgan, a financial advisor, has told her clients the following things. Which of her statements is not correct

"U.S. government bonds generally pay a higher rate of interest than corporate bonds.

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

capital investment.

By definition, equity finance...

is accomplished when firms sell shares of stock.

A bond buyer is a

saver. Bond buyers may sell their bonds prior to maturity. Long-term Bonds have more risk then Short-term Bond

On which of these bonds is the prospect of default most likely?

A Junk Bond

Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?

An increase in the supply of or a decrease in the demand for loanable funds

Two of the economy's most important financial intermediaries are

Banks and Mutual Funds

Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct?

Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate.

Which of the following is a certificate of indebtedness?

Bonds but not stocks

Mutual Fund

Is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of both stocks and bonds.

Diversity

Is similar to the old adage, "Don't put all your eggs in one basket,

Long-term bonds are

Riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Debt Financing

The bond market

Demand

The source of Demand of loanable funds

Savings

The source of the supply of loanable funds

It is claimed that a secondary advantage of mutual funds is that

They give ordinary people access to the skills of professional money managers

Crowding out occurs when investment declines because a budget

deficit makes interest rates rise.

The price of a stock will rise if the

demand for the stock rises