Question 1

Your brother-in-law wants to buy either stock or bonds in Cedar Valley Furniture,which manufactures wooden furniture.He wants your advice on whether to buy stock or bonds.Explain how each of his quotes below should affect his choice between the stock and the bond.
a.
"I have reason to believe that people are soon going to find rocking chairs have health benefits."
b.
"I would like to tell people I am part owner of Cedar Valley Furniture."
c.
"I do not want to take on much risk."

Accepted Answer

The answer of Your brother-in-law wants to buy either stock...

Question 2

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

Accepted Answer

Deficit financing allows the government to spend more than what it earns in revenue, which can be used to smooth out tax rates by reducing the need to increase taxes during economic downturns. This can help to stabilize the economy and prevent drastic changes in tax rates over time.

Question 3

Given that Lekeisha's income exceeds her expenditures,Lekeisha is best described as a

Accepted Answer

If Lekeisha's income exceeds her expenditures, it means that she has savings. As a result, she may choose to save her excess funds, which makes her a saver or a supplier of funds. She can invest her savings in various financial instruments, such as bonds, stocks, or mutual funds, to earn interest or dividends on her savings. Therefore, the best choice is A.

Question 4

Identify each of the following acts as representing either saving or investment.
a.
Fred uses some of his income to buy government bonds.
b.
Julie takes some of her income and buys mutual funds.
c.
Alex purchases a new truck for his delivery business using borrowed funds.
d.
Elaine uses some of her income to buy stock in a major corporation.
e.
Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

The answer of Identify each of the following acts as...

Question 5

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise.Yet we also suppose that higher interest rates lead to lower investment.How can these two conclusions be reconciled?

Accepted Answer

The answer of The model of the market for loanable...

Question 6

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

Accepted Answer

Capital investment refers to the purchase of physical assets that will be used in the production process of a business, such as printers, computers, furniture, and equipment.

Question 7

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

Accepted Answer

The answer of An increase in the budget deficit shifts...

Question 8

Using a graph representing the market for loanable funds,show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

The answer of Using a graph representing the market for...

Question 9

Suppose that you are a broker and people tell you the following about themselves.What sort of bond would you recommend to each? Defend your choices.
a.
"I am in a high federal income tax bracket and I don't want to take very much risk."
b.
"I want a high return and I am willing to take a lot of risk to get it."
c.
"I want a decent return and I have enough deductions that I don't value tax breaks highly."

Accepted Answer

The answer of Suppose that you are a broker and...

Question 10

Suppose the Move It! exercise chain has revenues of $45 million,accounting costs of $15 million,and currently has issued 10 million shares of stocks selling at $90 each.Compute the price-earning ratio.Show your work.Is this ratio relatively high or low? What might an increase in the price-earnings ratio indicate?

Accepted Answer

The answer of Suppose the Move It! exercise chain has...

Question 11

When a country saves a larger portion of its GDP than it did before,it will have

Accepted Answer

When a country saves a larger portion of its GDP, it accumulates more capital, which can be used to improve productivity through investments in infrastructure, technology, and education. Therefore, a higher savings rate leads to more capital and higher productivity.

Question 12

In the national income accounting identity showing the equality between national saving and investment,what are the algebraic expressions for private saving and public saving?

Accepted Answer

The answer of In the national income accounting identity showing...

Question 13

Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a

Accepted Answer

Alyssa is in need of funds to cover her monthly expenditures, indicating that she is a borrower. Additionally, since her monthly income is not enough to cover these expenses, she is also a demander of funds. Choice D is the only option that includes both of these elements.

Question 14

If you were to start a business delivering documents,you might need to purchase cell phones,bicycles,desks,and chairs.

Accepted Answer

These purchases are considered capital investment because they are assets used to generate income for the business. If you raise funds from others to purchase them, you are borrowing, making you a borrower.

Question 15

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

The answer of Draw and label a graph showing equilibrium...

Question 16

Which of the two bonds in each example would you expect to generally pay the higher interest rate? Explain why.
a.
a U.S.government bond or a Brazilian government bond
b.
a U.S.government bond or a municipal bond with the same term and issued by a creditworthy municipality.
c.
a 6-month Treasury bill or a 20-year Treasury bond
d.
a Microsoft bond or a bond issued by a new recording company

Accepted Answer

The answer of Which of the two bonds in each...

Question 17

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

The answer of Explain why the demand for loanable funds...

Question 18

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

Accepted Answer

The institutions that help to match one person's saving with another person's investment are collectively called the financial system. The financial system includes banks, credit unions, investment firms, and other institutions that facilitate the flow of funds between savers and investors. The Federal Reserve system and monetary system are both subsets of the financial system, but they do not encompass all of the institutions involved in matching savings and investments.

Question 19

What are the basic differences between bonds and stocks?

Accepted Answer

The answer of What are the basic differences between bonds...

Question 20

The primary economic function of the financial system is to

Accepted Answer

The primary economic function of the financial system is to match one person's saving with another person's investment. This involves allocating resources efficiently by channeling savings to its most productive use to promote economic growth.

Quiz 26: Saving, investment, and the Financial System