Econ macro exam 2.1

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

a

A closed economy Select one: a. does not trade with other economies. b. is centrally-planned. c. does not allow financial intermediation. d. All of the above are correct.

a

A stock index is Select one: a. an average of a group of stock prices. b. an average of a group of stock yields. c. a measure of the risk relative to the profitability of corporations. d. a report in a newspaper or other media outlet on the price of the stock and earnings of the corporation that issued the stock.

a

Banks Select one: a. play a role in creating an asset that people can use as a medium of exchange. b. are financial intermediaries, but mutual funds are not financial intermediaries. c. are financial markets, as are bond markets. d. All of the above are correct.

a

Compared to short-term bonds, other things the same, long-term bonds generally have Select one: a. more risk and so they pay higher interest rates. b. less risk and so they pay lower interest rates. c. less risk and so they pay higher interest rates. d. about the same risk and so they pay about the same interest rate.

a

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

a

If a firm wants to borrow it can Select one: a. supply bonds by selling them. b. supply bonds by buying them. c. demand bonds by selling them. d. demand bonds by buying them.

a

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium? Select one: a. saving and the interest rate b. saving but not the interest rate c. the interest rate but not saving d. neither saving nor the interest rate

a

Retained earnings are Select one: a. earnings of a company that are not paid out to stockholders. b. the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its accountants. c. the single most important piece of information about a stock. d. computed by multiplying the dividend yield by the price of the stock.

a

Which of the following are financial intermediaries? Select one: a. both banks and mutual funds b. banks but not mutual funds c. mutual funds but not banks d. neither banks or mutual funds

a

A bond buyer is a Select one: a. saver. Long term bonds have less risk than short term bonds. b. saver. Long term bonds have more risk than short term bonds. c. borrower. Long term bonds have less risk than short term bonds. d. borrower. Long term bonds have more risk than short term bonds.

b

A bond is a Select one: a. financial intermediary. b. certificate of indebtedness. c. certificate of partial ownership in an enterprise. d. None of the above is correct.

b

A municipal bond is Select one: a. issued by the federal government. b. issued by state and local governments. c. issued by corporations. d. issued by households.

b

In the language of macroeconomics, investment refers to Select one: a. saving. b. the purchase of new capital. c. the purchase of stocks, bonds, or mutual funds. d. All of the above are correct.

b

National saving Select one: a. is the total income in the economy that remains after paying for consumption. b. is the total income in the economy that remains after paying for consumption and government purchases. c. is always greater than investment for a closed economy. d. is equal to private saving minus public saving.

b

The economy's two most important financial markets are Select one: 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 price of a stock will rise if Select one: a. the managers of a stock exchange decide the price should be higher. b. if demand of stock rises c. the supply of the stock rises. d. None of the above are correct.

b

All else equal, when people become more optimistic about a company's future, the Select one: a. supply of the stock and the price will both rise. b. supply of the stock and the price will both fall. c. demand for the stock and the price will both rise. d. demand for the stock and the price will both fall.

c

By definition, equity finance Select one: a. is accomplished when units of government sell bonds. b. is accomplished when firms sell bonds. c. is accomplished when firms sell shares of stock. d. involves "fair" interest rates or dividend yields.

c

If the supply for loanable funds shifts to the left, then the equilibrium interest rate Select one: a. and quantity of loanable funds rises. b. and quantity of loanable funds falls. c. rises and the quantity of loanable funds falls. d. falls and the quantity of loanable funds rises.

c

Other things the same, a government budget deficit Select one: a. reduces public saving, but not national saving. b. reduces national saving, but not public saving. c. reduces both public and national saving. d. reduces neither public saving nor national saving.

c

Other things the same, as the maturity of a bond becomes longer, the bond will pay Select one: a. a lower interest rate because it has less risk. b. a lower interest rate because it has more risk. c. a higher interest rate because it has more risk. d. the same interest rate, because there is no relationship between term and risk.

c

Which of the following is true concerning interest rates on bonds? Select one: a. The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond higher than otherwise. b. The tax treatment of interest earned on municipals bonds makes the interest rate on them higher than otherwise. High default risk makes the interest rate on a bond lower than otherwise. c. 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. d. 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 lower than otherwise.

c

A budget surplus Select one: a. occurs when the government has debt equal to zero. b. causes government debt to increase. c. exists when government spending is greater than tax revenues. d. reduces the government's debt.

d

A mutual fund Select one: a. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. b. is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. c. sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. d. 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.

d

If the government's expenditures exceeded its receipts, it would likely Select one: 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

In a closed economy, what does (T - G) represent? Select one: a. national saving b. investment c. private saving d. public saving

d

In a closed economy, what does (Y - T - C) represent? Select one: a. national saving b. government tax revenue c. public saving d. private saving

d

The primary economic function of the financial system is to Select one: a. keep interest rates low. b. provide expert advice to savers and investors. c. match one person's consumption expenditures with another person's capital expenditures. d. match one person's saving with another person's investment.

d

The sale of stocks Select one: a. and bonds to raise money is called debt finance. b. and bonds to raise money is called equity finance. c. to raise money is called debt finance, while the sale of bonds to raise funds is called equity finance. d. to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance.

d