Question 1

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 2

How do banks make profits?

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Question 3

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.

Accepted Answer

Bonds with longer terms typically have higher interest rates to compensate investors for the amount of time their money is tied up in the investment. Therefore, Bond B with the longer term is expected to pay a higher rate of interest.

Question 4

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 5

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 6

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

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Question 7

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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Question 8

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

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Question 9

In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

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Question 10

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 11

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 12

A does not engage in international trade in goods and services and it does not engage in international borrowing and lending.

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Question 13

What is a mutual fund?

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Question 14

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

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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

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 17

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 18

and are the two most important financial intermediaries.

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Question 19

National saving is the sum of and . In a closed economy it is equal to in equilibrium.

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Question 20

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

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Quiz 26: Saving, Investment, and the Financial System