ECON 2333- CH 13

The source of the supply of loanable funds a. is saving and the source of demand for loanable funds is investment. b. is investment and the source of demand for loanable funds is saving. c. and the demand for loanable funds is saving. d. and the demand for loanable funds is investment.

a. is saving and the source of demand for loanable funds is investment.

An increase in the government's budget surplus means public saving is a. positive and increasing. b. positive and decreasing. c. negative and increasing. d. negative and decreasing.

a. positive and increasing.

Other things the same, a higher interest rate induces people to a. save more, so the supply of loanable funds slopes upward. b. save less, so the supply of loanable funds slopes downward. c. invest more, so the supply of loanable funds slopes upward. d. invest less, so the supply of loanable funds slopes downward.

a. save more, so the supply of loanable funds slopes upward.

Given that Monika's income exceeds her expenditures, Monika is best described as a a. saver or as a supplier of funds. b. saver or as a demander of funds. c. borrower or as a supplier of funds. d. borrower or as a demander of funds.

a. saver or as a supplier of funds.

In a closed economy, private saving is a. the amount of income that households have left after paying for their taxes and consumption. b. the amount of income that businesses have left after paying for the factors of production. c. the amount of tax revenue that the government has left after paying for its spending. d. always equal to investment.

a. the amount of income that households have left after paying for their taxes and consumption.

We associate the term debt finance with a. the bond market, and we associate the term equity finance with the stock market. b. the stock market, and we associate the term equity finance with the bond market. c. financial intermediaries, and we associate the term equity finance with financial markets. d. financial markets, and we associate the term equity finance with financial intermediaries.

a. the bond market, and we associate the term equity finance with the stock market.

Refer to Figure 26-1. What is measured along the vertical axis of the graph? a. The tax rate b. The interest rate c. The quantity of investment d. The quantity of saving

b. The interest rate

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then the a. demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. b. demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. c. supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. d. supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

b. demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

The price of a stock will rise if the a. managers of a stock exchange decide the price should be higher. b. demand for the stock rises. c. supply of the stock rises. d. demand for the stock falls.

b. demand for the stock rises.

The slope of the supply of loanable funds curve represents the a. positive relation between the interest rate and investment. b. positive relation between the interest rate and saving. c. negative relation between the interest rate and investment. d. negative relation between the interest rate and saving.

b. positive relation between the interest rate and saving.

A bond buyer is a a. saver. Bond buyers must hold their bonds until maturity. b. saver. Bond buyers may sell their bonds prior to maturity. c. borrower. Bond buyers must hold their bonds until maturity. d. borrower. Bond buyers may sell their bonds prior to maturity.

b. saver. Bond buyers may sell their bonds prior to maturity.

The economy's two most important financial markets are a. the investment market and the saving market. b. the bond market and the stock market. c. banks and the stock market. d. financial markets and financial institutions.

b. the bond market and the stock market.

Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called a. an increase in the supply of loanable funds. b. an increase in the quantity of loanable funds supplied. c. a decrease in the supply of loanable funds. d. a decrease in the quantity of loanable funds supplied.

c. a decrease in the supply of loanable funds.

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead, a. invest in physical capital. b. use equity finance. c. sell bonds. d. purchase bonds.

c. sell bonds.

In a closed economy, what does (Y − T − C) represent? a. National saving b. Government tax revenue c. Public saving d. Private saving

d. Private saving

In a closed economy, what does the difference between the tax revenue and government purchases, (T − G), represent? a. National saving b. Investment c. Private saving d. Public saving

d. Public saving

Consider the expressions T − G and Y − T − C. Which of the following statements is correct? a. Each one of these is equal to national saving. b. Each one of these is equal to public saving. c. The first of these is private saving; the second one is public saving. d. The first of these is public saving; the second one is private saving.

d. The first of these is public saving; the second one is private saving.

Suppose private saving in a closed economy is $12b and investment is $10b. a. National saving must equal $12b. b. Public saving must equal $2b. c. The government budget surplus must equal $2b. d. The government budget deficit must equal $2b.

d. The government budget deficit must equal $2b.

Financial intermediaries are a. the same as financial markets. b. individuals who make profits by buying a stock low and selling it high. c. a more general name for financial assets such as stocks, bonds, and checking accounts. d. financial institutions through which savers can indirectly provide funds to borrowers.

d. financial institutions through which savers can indirectly provide funds to borrowers.

Institutions that help to match one person's saving with another person's investment are collectively called the a. Federal Reserve system. b. banking system. c. monetary system. d. financial system.

d. financial system.

If the government's expenditures exceeded its receipts, it would likely a. lend money to a bank or other financial intermediary. b. borrow money from a bank or other financial intermediary. c. buy bonds directly from the public. d. sell bonds directly to the public.

d. sell bonds directly to the public.

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures a. capital investment. b. investment in human capital. c. business consumption expenditures. d. personal saving.

a. capital investment.

Crowding out occurs when investment declines because a budget a. deficit makes interest rates rise. b. deficit makes interest rates fall. c. surplus makes interest rates rise. d. surplus makes interest rates fall.

a. deficit makes interest rates rise.

Mutual funds are a type of financial intermediary. a. true b. False

a. true

Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2? a. The government goes from running a budget deficit to running a budget surplus. b. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. c. A change in the tax laws encourages people to consume less and save more. d. A change in the tax laws encourages people to consume more and save less.

b. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.

In a closed economy, if taxes fall and consumption rises, then private saving must fall. a. True b. False

b. false

Which of the following bonds has the highest interest rate? a. A high credit risk and a short term b. A low credit risk and a short term c. A long term and a high credit risk d. A long term and a low credit risk

c. A long term and a high credit risk

Which of the following statements about the term of a bond is correct? a. Term refers to the various characteristics of a bond, including its interest rate and tax treatment. b. The term of a bond is determined entirely by its credit risk. c. The term of a bond is determined entirely by how much sales commission the buyer of the bond pays when he or she purchases the bond. d. Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

d. Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

Refer to Figure 26-4. Starting at point A, the enactment of an investment tax credit would likely cause the quantity of loanable funds traded to a. increase to $160 and the interest rate to rise to 7% (point C). b. decrease to $80 and the interest rate to fall to 4% (point B). c. decrease to $80 and the interest rate to rise to 7% (point E). d. increase to $160 and the interest rate to fall to 4% (point D).

a. increase to $160 and the interest rate to rise to 7% (point C).

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds. a. True b. False

a. true