E202 MyEconLab Quiz 7
Present value is the value in today's dollars of funds to be paid or received in the future. What is the present value of $1,000 to be received in 18 years if the current interest rate is 9%?
$211.99
If the interest rate is 20 percent, what is the present value of a bond that matures in two years, pays $85 one year from now, and pays $1,085 two years from now?
$824.3
In a simple economy, the savings function is S=−200+0.10Y. Investment is equal to 700. In this economy, equilibrium GDP is ___________? At equilibrium in this economy, what is the relationship between planned savings and planned investment? (A) It depends on the economy; there is no specific relationship between these variables. (B) They are equal. (C) Planned savings is greater than planned investment. (D) Planned savings is less than planned investment.
$9000 (B) They are equal.
In a closed economy, Y = $19 billion C = $15.2 billion I = $1.9 billion TR = $2.0 billion T = $3.0 billion Calculate each of the following (1) Private savings (2) Public savings (3) Total savings in this economy (4) The government's budget deficit or surplus
(1) $2.8 billion (2) $-0.9 billion (3) $1.9 billion (4) $-0.9 billion
(1) What shift occurs because of an increase in business taxes? (2) When business taxes increase, the equilibrium interest rate _______? (3) and the equilibrium quantity of loanable funds __________?
(1) AD shifts left (2) decreases (3) decreases
On the Loanable Funds graph, when supply shifts left... (1) What happens to the supply of loanable funds? (2) What happens to the equilibrium quantity of loanable funds? (3) What happens to the quantity of saving? (4) What happens to the quantity of investment?
(1) decrease (2) decreases (3) decreases (4) decreases
A federal budget surplus (1) ____________ the equilibrium interest rate and (2) ____________ the quantity of loanable funds
(1) decreases (2) increases
Assuming that other factors that affect the demand and supply of loanable funds remain the same, as a result of the larger budget deficit, the equilibrium real interest rate (1) ___________ and the equilibrium quantity of loanable funds (2) __________
(1) increases (2) decreases
A flow of funds from savers to borrowers through financial intermediaries such as banks is (1) _______ finance, while a flow of funds from savers to firms through financial markets, such as the New York Stock Exchange is (2) ______ finance.
(1) indirect (2) direct
Which of the following is not a "loanable fund"? (A) Real estate. (B) Bank certificates of deposit. (C) Bonds. (D) Mutual fund shares.
(A) Real estate.
Which one of the following expressions shows the investment-saving equality? (A) S=Y−C−G (B) I=Y+TR−C−G (C) S=Y+T−TR−G (D I=Y+TR-C-T
(A) S=Y−C−G
When the budget deficit increases, (A) both saving and investment decrease. (B) both saving and investment increase. (C) saving decreases while investment increases. (D) saving increases and investment decreases.
(A) both saving and investment decrease.
If the federal government runs a budget surplus, (A) both saving and investment will increase. (B) saving will decrease but investment will increase. (C) both saving and investment will decrease. (D) saving will increase but investment will decrease.
(A) both saving and investment will increase.
Households supply loanable funds because of the (A) interest income received from the borrowers. (B) profit income earned from running a money-lending business. (C) wage income earned from working in the financial markets. (D) rent income they receive as resource owner.
(A) interest income received from the borrowers.
A decrease in the price of a firm's stock would tell managers which of the following? (A) Investors expect the firm to have higher profits in the future. (B) Investors expect the firm to have lower profits in the future. (C) The cost of external funds has increased. (D) The cost of external funds has decreased.
(B) Investors expect the firm to have lower profits in the future.
The financial system—either financial markets or financial intermediaries—provides savers and borrowers with all of the following except: (A) The financial system provides liquidity to savers by giving them the opportunity to buy and sell their financial securities. (B) The financial system provides security to savers by warranting that their funds are fully insured against loss. (C) The financial system provides savers with facts and information about borrowers and about expected returns on their financial investments. (D) The financial system provides risk sharing to savers by giving them the opportunity to diversify their funds among different investment choices.
(B) The financial system provides security to savers by warranting that their funds are fully insured against loss.
A decrease in the price of a firm's bonds would tell managers which of the following? (A) Investors expect the firm to have lower profits in the future. (B) The cost of external funds has decreased. (C) Investors expect the firm to have higher profits in the future. (D) The cost of external funds has increased.
(D) The cost of external funds has increased.
What will be the effect of an increase in business taxes on the quantity of investment by firms and the economy's capital stock in the future? (A) The quantity of investment will increase and the economy's future capital stock will decrease. (B) The quantity of investment will increase and the economy's future capital stock will increase. (C) The quantity of investment will decrease and the economy's future capital stock will increase. (D) The quantity of investment will decrease and the economy's future capital stock will decrease.
(D) The quantity of investment will decrease and the economy's future capital stock will decrease.
The financial system of a country is important for long-run economic growth because (A) people can increase their wealth very quickly under a healthy financial system. (B) firms that use the financial system predominantly are being reckless. (C) most firms rely on their own retained earnings and do not use the financial system. (D) firms need the financial system to acquire funds from households.
(D) firms need the financial system to acquire funds from households.
Businesses demand loanable funds because (A) households charge a much higher rate of interest than the going rate of interest in the loanable funds market. (B) loanable fund interest rates are always lower than the rate of return on their new investments. (C) firms need to borrow funds so that they can pay the wage costs and other recurring expenses of the business. (D) firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.
(D) firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.
A(n) _____ is a financial security that represents partial ownership of a firm, while a _____ is a financial security that represents a promise to repay a fixed amount of funds. (A) interest payment, stock (B) stock, dividend (C) bond, stock (D) stock, bond
(D) stock, bond
It is essential for economic growth that firms have access to adequate sources of funds, because otherwise firms will not be
able to invest in capital, adopt new technologies, and expand
Before the start of the 2000 baseball season, the New York Mets decided they didn't want Bobby Bonilla playing for them any longer. But Bonilla had a contract with the Mets for the 2000 season that would have obliged the Mets to pay him $5.9 million. When the Mets released Bonilla, he agreed to take the following payments in lieu of the $5.9 million the Mets would have paid him in the year 2000: He will receive 25 equal payments of $1,193,248.20 each July 1 from 2011 to 2035. If you were Bobby Bonilla, which would you rather have had, the lump-sum $5.9 million or the 25 payments beginning in 2011, assuming an interest rate of 24%? Assuming an interest rate of 24%, if you were Bobby Bonilla, you would rather have the __________
lump sum
