Chapter 26 quiz

As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,

sell bonds.

The economy's two most important financial markets are

the bond market and the stock market.

At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis?

the decline in confidence in financial institutions

If the Apple corporation sells a bond it is

borrowing directly from the public.

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

capital investment.

A bond is a

certificate of indebtedness.

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

financial intermediaries

Institutions that help to match one person's saving with another person's investment are collectively called the

financial system.

The nominal interest rate is the

interest rate as usually reported by banks.

Crowding out occurs when

investment declines because a budget deficit makes interest rates rise.

A mutual fund

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

A municipal bond is

issued by state and local governments.

The primary economic function of the financial system is to

match one person's saving with another person's investment.

Other things the same, when the interest rate rises,

people would want to lend more, making the quantity of loanable funds supplied increase.

The dividend yield is

reported as a percentage of the stock's price.

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.

A bond buyer is a

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

A decrease in government spending and the enactment of an investment tax credit would definitely cause

the quantity of loanable funds traded to increase.

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

their investments are being financed by someone else's saving.

​Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate increase by 2 percent. Now, Woody

​is just as likely to buy the building as before.