Macroeconomics Chapter 8
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."
Refer to Table 26-3. Determine the quantity of private saving.
$1.6 trillion
Refer to Scenario 26-1. For this economy, investment amounts to
$15,000.
Queen City Sausage stock is selling at $40 per share, it has retained earnings of $1.00 per share, and dividends of $1.00 per share. What is the price-earnings ratio and what is the dividend yield?
20, 2.5 percent.
Stocks and bonds
and checking accounts are all stores of value, but only checking accounts commonly function as mediums of exchange.
Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?
Jim's and ABC Corporation's
Refer to table 26-2. Which company had the lowest earnings per share?
Kellogg Co.
Refer to Table 26-2. Which company had the highest dollar dividend per share?
Kraft Foods Group
Kroger's grocery chain wants to finance the purchase of a new warehouse. It decides to sell bonds.
Kroger's plans to use debt financing and its action is part of the demand for loanable funds.
Which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds?
The demand for loanable funds shifted leftward.
Which of the following could explain an increase in the interest rate and the equilibrium quantity of loanable funds?
The demand for loanable funds shifted rightward.
Which of the following restrictions implies that investment exceeds private saving for a closed economy?
The economy's government is running a budget surplus.
Which of the following statements is correct?
The expected future profitability of a corporation influences the demand for that corporation's stock.
The purchase of a new house is the one form of
household spending that is investment rather than consumption.
Which of the following is included in the demand for loanable funds?
investment but not government borrowing
When public saving falls by $2b and private saving falls by $1b in a closed economy,
investment falls by $3b.
When the government runs a budget deficit,
investment is lower than it would be if the budget were balanced.
A decrease in the budget deficit
makes investment spending rise.
When a country saves a larger portion of its GDP than it did before, it will have
more capital and higher productivity.
If an economy is closed and if it has no government, then
national saving = private saving.
After a corporation issues stock, the stock
none of the above are correct
The ratio of debt to GDP in the United States
tends to rise during wars, rose during the decade that began in 2001, and fell during the late 1990s.
In a closed economy, private saving is
the amount of income that households have left after paying for their taxes and consumption.
Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause
the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.
Which of the following both make the interest rate on a bond higher than otherwise?
the interest it pays is taxed and it was issued by a financially weak corporation
In the Coen Brothers' movie The Hudsucker Proxy the board of directors picks someone to run the company who they believe will make poor decisions. If things turn out as they plan,
the price of a share of stock in the Hudsucker corporation should decline as the demand for shares falls.
Refer to Figure 26-5. Starting at point A, the enactment of an investment tax credit would likely cause
the quantity of loanable funds traded to increase to $125 and the interest rate to rise to 7% (point C).
Refer to Figure 26-4. If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then
the rate of inflation is approximately 2 percent.
Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?
the supply of loanable funds shifted right.
Which of the following is true concerning interest rates on bonds?
the tax treatment of interest earned on municipals bonds makes the interest rate on them lower than otherwise. High default risk makes the interest rate on a bond higher than otherwise.
If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,
there is a shortage and the interest rate is below the equilibrium level.
It is claimed that a secondary advantage of mutual funds is that
they give ordinary people access to the skills of professional money managers.
Refer to Table 26-2. Which company had the highest earnings per share?
Boeing Co.
Which of the following is not a nonsensical headline?
Corporate bonds currently pay higher interest rates than government bonds.
What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?
None of the above is correct
You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?
Private saving is positive; public saving is negative.
Which of the following is an example of financial intermediation?
Susan makes a deposit at a bank and the bank uses this money to make an auto loan to Ferguson.
Which of the following statements is correct?
Unlike corporate bonds and stocks, checking accounts are a medium of exchange.
What would happen in the market for loanable funds if the government were to increase the tax on interest income?
The supply of loanable funds would shift left.
Other things the same, a government budget deficit
reduces both public and national saving.
