Deck 26: True False

Question 1

Other things the same,corporate bonds generally feature higher interest rates than U.S.government bonds.

Answer 1

True

Question 2

If people become less optimistic about the future earnings of Hyde Park Jazz Studio,then the price of the company's stock will fall.

Answer 2

True

Question 3

Index funds are usually outperformed by mutual funds that are actively managed by professional money managers.

Answer 3

False

Question 4

All financial intermediaries are financial institutions,but not all financial institutions are financial intermediaries.

Question 5

Lenders sell bonds and borrowers buy them.

Question 6

Generally,if people begin to expect a company to have higher future profits,the price of the company's stock will begin to decrease.

Question 7

The sale of either stocks or bonds to raise money is known as equity finance.

Question 8

Corporations receive no proceeds from the resale of their stock.

Question 9

Banks and mutual funds are examples of financial markets.

Question 10

Other things the same,the higher the rate of saving and investment in a country,the higher will be the standard of living in the future.

Question 11

The financial system coordinates investment and saving,which are important determinants of long-run real GDP.

Question 12

Most entrepreneurs finance their purchases of real capital using their past saving.

Question 13

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling bonds.

Question 14

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Question 15

Lenders buy bonds and borrowers sell them.

Question 16

When a corporation experiences financial problems,bondholders are paid before stockholders.

Question 17

When a firm wants to borrow directly from the public to finance the purchase of new equipment,it does so by selling shares of stock.

Question 18

If a share of stock in Skylight Chili sells for $75,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 15.

Question 19

Mutual funds are a type of financial intermediary.

Question 20

Because of differences in tax treatment,municipal bonds pay a higher interest rate than do corporate bonds.

Question 21

In a closed economy,if taxes fall and consumption rises,then private saving must fall.

Question 22

If,for an imaginary closed economy,investment amounts to $10,000 and the government is running a $2,500 deficit,then private saving must amount to $12,500.

Question 23

By definition,government purchases and taxes are zero for a closed economy.

Question 24

Public saving is equal to national saving minus private saving.

Question 25

Suppose a small closed economy has GDP of $5 billion,consumption of $3 billion,and government expenditures of $1 billion.Then investment and national saving are both $1 billion.

Question 26

If a share of stock in Dell sells for $70,the retained earnings per share are $5,and the dividend per share is $2,then the price-earnings ratio is 10.

Question 27

In a closed economy,investment must be equal to private saving.

Question 28

Financial crises seldom involve economic downturns.

Question 29

Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

Question 30

Owners of bonds that were issued by the federal government are not required to pay federal income tax on the interest income.

Question 31

Alberta buys a paint sprayer and a lift for her car customizing shop.A macroeconomist would refer to these purchases as investment.

Question 32

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Question 33

Public saving is T - G,while private saving is Y - T - C.

Question 34

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

Question 35

If the tax rate fell,holding municipal bonds would be less desirable so the interest rates on them would fall.

Question 36

To state that national saving is equal to investment,for a closed economy,is to state an accounting identity.

Question 37

National saving is equal to Y - T - C.

Question 38

To state that public saving is equal to investment,for a closed economy,is to state an accounting identity.

Question 39

Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.

Question 40

If,for an imaginary closed economy,investment amounts to $12,000 and the government is running a $2,000 deficit,then private saving must amount to $10,000.

Question 41

A decrease in taxes on interest income would increase the interest rate.

Question 42

An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving.

Question 43

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

Question 44

On a graph that depicts the market for loanable funds,the nominal interest rate is measured along the vertical axis.

Question 45

We interpret the term loanable funds to mean the flow of resources available to fund private investment.

Question 46

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

Question 47

Index funds are financial intermediaries,but municipal bonds are not.

Question 48

When the U.S.government is in debt during a given year,it follows that its budget is in deficit for that year.

Question 49

The term loanable funds refers to all income that is not used for consumption.

Question 50

When an economy's government goes from running a budget deficit to running a budget surplus,the economy's long-run growth prospects are improved.

Question 51

The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S.history.

Question 52

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

Question 53

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company's true value.

Question 54

The term loanable funds refers to all income that is not used for consumption or government expenditures.

Question 55

An increase in the budget deficit shifts the demand for loanable funds to the right.

Question 56

When the government budget deficit rises,national saving is reduced,interest rates rise,and investment falls.

Question 57

In a closed economy,each unit of output is either consumed by households or invested.

Question 58

If Congress instituted an investment tax credit,the demand for loanable funds would shift rightward.

Question 59

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Question 60

A government may use deficit financing to smooth tax rates over time.

Question 61

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

Question 62

Taking out a mortgage to buy a condo,buying a mutual fund,and building a new factory are all examples of investment.

Question 63

Financial markets are important for bringing equilibrium to the loanable funds market,but do not affect the efficient allocation of scarce resources in the long-run.