Question 1

What is a bond buyer promised when she buys a bond?

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Question 2

Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or low? What are two explanations for the size of this company's price to earnings ratio?

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Question 3

Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?

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Question 4

How do banks make profits?

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Question 5

List three characteristics of a bond that would make its interest rate higher than otherwise.

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Question 6

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

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Question 7

What is a mutual fund?

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Question 8

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

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Question 9

The two most important financial markets are the _____ market and the _____ market.

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Question 10

If federal tax rates increased, what would happen to the interest rate on municipal bonds?

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Question 11

What does the maturity of a bond indicate?

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Question 12

A is a certificate of indebtedness and a is a claim to partial ownership in a firm.

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Question 13

Robert buys bonds. Rachel buys a new truck for her landscaping business. Identify both as savers, investors, both, or neither.

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Question 14

In the terminology of macroeconomics, what's the difference between a saver and an investor?

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Question 15

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

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Question 16

Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the company's less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on this company's bonds?

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Question 17

and are the two most important financial intermediaries.

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Question 18

Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher rate of interest.

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Question 19

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

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Question 20

A restaurant chain announces declining revenues. What's the name of the type of risk that this news raises for holders of this chain's bonds? What does this news to do the interest rate on this chain's bonds?

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Quiz 18: Saving, Investment, and the Financial System