Econ test 3 prob set 6

Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one of its breweries. a. Fran and Miller are both saving. b. Fran is saving; Miller is investing. c. Fran and Miller are both investing. d. Fran is investing; Miller is saving.

b. Fran is saving; Miller is investing.

A bond that never matures is known as a. an indexed bond. b. a perpetuity. c. an intermediary bond. d. a junk bond.

b. a perpetuity

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

b. capital investment.

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. demand for the stock falls. d. supply of the stock rises.

b. demand for the stock rises.

Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium a. interest rates and the equilibrium quantity of loanable funds rise. b. interest rates rise and the equilibrium quantity of loanable funds fall. c. interest rates fall and the equilibrium quantity of loanable funds rise. d. interest rates and the equilibrium quantity of loanable funds fall.

b. interest rates rise and the equilibrium quantity of loanable funds fall.

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters: a. "Intermediate." b. "Use a medium of exchange." c. "Diversify." d. "Buy low-risk bonds."

c. "Diversify."

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving? a. Public saving would fall and national saving would rise. b. Public saving would rise and national saving would fall. c. Public and national saving would fall. d. Public and national saving would rise.

c. Public and national saving would fall.

As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is a. lending indirectly. b. lending directly. c. borrowing directly. d. borrowing indirectly.

c. borrowing directly.

In a closed economy, if Y, C, and T remained the same, a decrease in G would a. reduce private saving and public saving. b. increase private saving but not public saving. c. increase public saving but not private saving. d. increase neither private nor public saving.

c. increase public saving but not private saving.

At the broadest level, the financial system moves the economy's scarce resources from a. the rich to the poor. b. households to financial institutions. c. savers to borrowers. d. financial institutions to business firms and government.

c. savers to borrowers.

Which of the following is true concerning interest rates on bonds? a. Because of the tax advantage, municipal bonds pay higher interest rate than other bonds. High default risk makes the interest rate on a bond lower than otherwise. b. Because of the tax advantage, municipal bonds pay higher interest rate than other bonds. High default risk makes the interest rate on a bond higher than otherwise. c. Because of the tax advantage, municipal bonds pay lower interest rate than other bonds. High default risk makes the interest rate on a bond lower than otherwise. d. Because of the tax advantage, municipal bonds pay lower interest rate than other bonds. High default risk makes the interest rate on a bond higher than otherwise.

d. Because of the tax advantage, municipal bonds pay lower interest rate than other bonds. High default risk makes the interest rate on a bond higher than otherwise.

For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that a. I = S + NX. b. S = I. c. S = 0. d. S = I + NX.

d. S = I + NX.

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving? a. $1.5 trillion and $2.5 trillion, respectively b. $2.5 trillion and $1.5 trillion, respectively c. $1.5 trillion and $1.5 trillion, respectively d. $2.5 trillion and $2.5 trillion, respectively

a. $1.5 trillion and $2.5 trillion, respectively

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is a. $6 billion and consumption is $6 billion. b. $7 billion and consumption is $6 billion. c. $6 billion and consumption is $7 billion. d. $7 billion and consumption is $7 billion.

a. $6 billion and consumption is $6 billion.

If the demand for loanable funds shifts to the right, then the equilibrium interest rate a. and quantity of loanable funds rise. b. falls and the quantity of loanable funds rises. c. rises and the quantity of loanable funds falls. d. and quantity of loanable funds fall.

a. and quantity of loanable funds rise.

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 markets, and we associate the term equity finance with financial intermediaries. d. financial intermediaries, and we associate the term equity finance with financial markets.

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

It is claimed that a secondary advantage of mutual funds is that a. they give ordinary people access to the skills of professional money managers. b. they usually outperform stock market indexes. c. an investor can avoid investment charges and fees. d. they give ordinary people access to loanable funds for investing.

a. they give ordinary people access to the skills of professional money managers.

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

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

d. deficit makes interest rates rise.