1. |
B |
2. |
B |
3. |
D |
4. aplia |
aplia |
5. |
B |
6. |
D |
7. |
C |
8. |
B |
9. |
D |
11. |
A |
12. |
B |
Other things the same, if the government increases transfer payments to households, then the effect of this on the government's budget |
C |
An article in the textbook suggests that one method to correct the higher education inefficiency is to |
D |
15. |
B |
16. |
A |
17. Managed funds |
C |
18. |
A |
19. |
C |
20. |
D |
21. |
D |
22. |
B |
23. |
C |
24. |
C |
25. |
B |
25. |
B |
26. |
C |
27. |
C |
28. |
D |
29. If there is a surplus of loanable funds, then |
C |
30. |
A |
31. |
D |
32.important. EPS aplia |
aplia |
33. |
C |
34. |
A |
35. aplia |
aplia |
36. |
D |
37. |
D |
38. |
B |
39. |
B |
Scenario 26-3. Assume the following information for an imaginary, open economy. Refer to Scenario 26-3. For this economy, government purchases amount to |
A |
41. |
C |
42. |
D |
43. |
A |
44. |
C |
45. |
B |
46. |
C |
47. |
B |
48. |
B |
49. |
A |
50. |
B |
51. |
A |
52. |
C |
53. |
A |
54. |
A |
55. |
A |
56. |
A |
57. |
C |
58. |
C |
59. |
A |
60. |
B |
61. |
C |
62. |
A |
63. |
C |
64. |
C |
65. |
C |
66. |
C |
67. |
A |
68. |
B |
69. |
B |
70. |
A |
71. |
C |
72 .aplia |
aplia |
73. |
C |
74 aplia |
aplia |
75. |
C |
76. |
C |
77. |
C |
78. |
D |
79. |
A |
80. |
D |
81. |
D |
82. |
B |
83. |
B |
85. aplia |
aplia |
86. |
A |
87. |
A |
88. |
D |
89. |
B |
90. |
B |
91. |
A |
92. |
B |
93. |
A |
94. |
A |
95. |
B |
96. |
A |
97. |
A |
98. |
B |
99. |
A |
100. |
C |
Historically, the typical price-earnings ratio for stocks is about: |
15 |
A country's trade balance will fall if.. |
either saving falls or investment rises. |
As the number of stocks in a person's portfolio increases, |
the risk of the portfolio decreases, as indicated by the decreasing value of the standard deviation of the portfolio. |
Which of the following is generally an opportunity cost of investment in human capital? |
forgone present wages |
If traveler's checks were $1000 higher and saving deposits were $500 higher, M1 would be |
$1,000 higher and M2 would be $1,500 higher. |
In a closed economy, private saving is |
the amount of income that households have left after paying for their taxes and consumption. |
If the exchange rate rises from .65 British pounds per dollar to .70 pounds per dollar, then compared to British goods, U.S. goods become |
relatively more expensive for both British and U.S. residents. |
If there were no factors keeping wages from reaching equilibrium then there would be no |
structural unemployment. |
Which of the following is correct? |
A bank's deposits at the Federal Reserve counts as part of the bank's reserves. The Federal Reserve pays interest on these deposits. |
Which of the following statements is correct? In the special case of the 100-percent reserve banking the money multiplier is |
1 and banks do not create money. |
Rafael is the newly-appointed plant manager for a company that manufactures head phones. Rafael's senior supervisors told him that the output the firm produces, given the number of workers employed, indicates that some workers may be shirking. According to efficiency wage theory, what should he do? |
pay all workers more than the equilibrium wage rate |
If there are diminishing returns to capital, then |
increases in the capital stock increase output by ever smaller amounts. |
A U.S. firm exchanges dollars for yen and then uses them to buy Japanese goods. Overall as a result of these transactions |
both U.S. net capital outflow and U.S. net exports fall. |
If the exchange rate is .60 British pounds = $1, a bottle of ale that costs 3 pounds costs |
$5 |
Frictional unemployment is |
inevitable, because at any given time, jobs are being created in some firms and destroyed in other firms. |
A central bank's setting (or altering) of the money supply is known as |
monetary policy |
The money supply decreases if |
households decide to hold relatively more currency and relatively fewer deposits and banks decide to hold relatively more excess reserves and make fewer loans. |
Net capital outflow equals the purchase of |
foreign assets by domestic residents - the purchase of domestic assets by foreign residents |
Industrial machinery is an example of |
a factor of production that in the past was an output from the production process. |
Which of the following is not correct? |
Economists who study the effects of unions typically find that union workers earn about 25 to 35 percent more than those who are not in a union |
Which of the following statements is true? |
a.The quantity of natural resources per worker can influence productivity. b. Technological knowledge and human capital are closely related. c. Over long periods of time, the prices of most natural resources are stable or falling, relative to other prices. d. All of the above are correct. |
If the Mexican nominal exchange rate does not change, but prices rise faster in Mexico than in all other countries, then the Mexican real exchange rate |
rises The nominal exchange rate simply states how much of one currency can be traded for a unit of another currency. The real exchange rate, on the other hand, describes how many of a good or service in one country can be traded for one of that good or service in another country. |
Which of the following people purchased the correct asset to meet his or her objective? |
Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric. |
In the fourteenth century it is estimated that deaths resulting from the bubonic plague reduced the population by about a third. Assuming diminishing returns, the decrease in population should have |
increased productivity and real GDP per person. |
A creditor of a corporation holds |
bonds sold by the corporation. If the corporation experiences financial difficulties bond holders are paid before stock holders |
Net exports must equal zero for any economy |
a. that is closed. b. for which Y = C + I + G. c. for which S = Y - C - G. |
In an economy that relies upon barter, |
there is no item in the economy that is widely accepted in exchange for goods and services. |
At some point during the financial crisis of 2008-2009, people with uninsured deposits at financial institutions withdrew money from their accounts at those institutions. This phenomenon characterized which element of the financial crisis? |
the decline in confidence in financial institutions |
An economy's natural rate of unemployment is the |
amount of unemployment that the economy normally experiences. |
During the past century the average growth rate of U.S. real GDP per person implies that it doubled, on average, about every |
35 years. |
Which of the following best illustrates diversification? |
Instead of holding only the stocks of companies engaged in the banking business, a person decides to hold stock in a number of different companies producing different goods and services. |
Which of the following is not always correct for a closed economy? |
a. National saving equals private saving plus public saving. b. Net exports equal zero. c. Real GDP measures both income and expenditures. d. Private saving equals investment. |
moral hazard |
is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. |
adverse selection |
is the tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have information that buyers don't (or vice versa) about some aspect of product quality. |
risk-return tradeoff |
is the principle that potential return rises with an increase in risk |
The Bureau of Labor Statistics produces data on |
a. unemployment. b. types of employment. c. length of the average workweek. |
fundamental analysis |
is the foundation of solid investing. It helps you determine the underlying health of a company by examining the business' core numbers: its income statements, its earnings releases, its balance sheet, and other indicators of economic health. |
Unemployment insurance |
a. may improve the ability of the economy to match workers with appropriate jobs. b. reduces the job search efforts of the unemployed. c. increases the amount of frictional unemployment in the economy. |
The curve becomes flatter as the amount of capital per worker increases because of |
diminishing returns to capital. |
If a bank that desires to hold no excess reserves and has just enough reserves to meet the required reserve ratio of 15 percent receives a deposit of $600, it has a |
$510 increase in excess reserves and a $90 increase in required reserves. |
Evidence indicates that the typical person who becomes unemployed will |
soon find a job. |
Which of the following is included in the demand for loanable funds? |
government borrowing but not investment |
The available evidence indicates that |
outperforming the market on a consistent basis is extremely difficult to do. |
Measured in 2010 dollars, real GDP per person in the United States in 2010 was about 14 times that in |
India |
Institutions that help to match one person's saving with another person's investment are collectively called the a. Federal Reserve system. |
D |
Which of the following statements about the term of a bond is correct? a. Term refers to the various characteristics of a bond, including its interest rate and tax treatment. |
D |
Municipal bonds pay a relatively a. low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. |
B |
The sale of stocks a. and bonds to raise money is called debt finance. |
D |
If Huedepool Beer runs into financial difficulty, the stockholders as a. part owners of Huedepool are paid before bondholders get paid anything at all. |
B |
The Dow Jones Industrial Average is now based on the prices of the stocks of a. 30 major U.S. corporations. |
A |
Which of the following is an example of financial intermediation? a. John buys shares of stock issued by a fast food company. |
C |
The primary advantage of mutual funds is that they a. always provide the highest return. |
C |
If national saving in a closed economy is greater than zero, which of the following must be true? a. Either public saving or private saving must be greater than zero. |
D |
In a closed economy, what does (Y - T - C) represent? a. national saving |
D |
Suppose private saving in a closed economy is $12b and investment is $10b. a. National saving must equal $12b. |
D |
According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would a. raise both national saving and private saving. |
D |
Other things the same, when the interest rate rises, a. people would want to lend more, making the supply of loanable funds increase. |
C |
If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, a. there is a surplus and the interest rate is above the equilibrium level. |
A |
If the government institutes policies that diminish incentives to save, then in the loanable funds market a. the demand for loanable funds shifts rightward. |
D |
Crowding out occurs when investment declines because a. a budget deficit makes interest rates rise. |
A |
Corporations receive no proceeds from the resale of their stocks. True |
True |
Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left. True |
True |
National saving is equal to Y - T - C. True |
False |
Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else, |
their investments are being financed by someone else's saving. |
When a large, well-known corporation wishes to borrow directly from the public, it can |
sell bonds. |
The economy's two most important financial markets are |
the bond market and the stock market. |
Two of the economy's most important financial intermediaries are |
banks and mutual funds. |
A bond is a |
certificate of indebtedness. |
The sale of stocks |
to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance. |
The Dow Jones Industrial Average is now based on the prices of the stocks of |
30 major U.S. corporations. |
Financial intermediaries are |
financial institutions through which savers can indirectly provide funds to borrowers. |
Which of the following is both a financial institution and a financial intermediary? |
Banks |
Which of the following are financial intermediaries? |
both banks and mutual funds |
A checking deposit functions as |
a medium of exchange and as a store of value. |
In a closed economy, what does (T - G) represent? |
public saving |
In a closed economy, what does (Y - T - C) represent? |
private saving |
The identity that shows that total income and total expenditure are equal is |
Y = C + I + G + NX. |
Which of the following equations represents GDP for a closed economy? |
Y = C + I + G |
For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total income in the economy that is left after paying for consumption and government purchases, then for an open economy, it is true that |
S = I + NX. |
The slope of the demand for loanable funds curve represents the |
negative relation between the real interest rate and investment. |
The slope of the supply of loanable funds curve represents the |
positive relation between the real interest rate and saving. |
If the demand for loanable funds shifts to the left, then the equilibrium interest rate |
and quantity of loanable funds fall. |
The financial system |
the group of institutions that helps math the saving of one person with the investment of another |
2 types of financial institutions |
1. Financial markets 2. Financial intermediaries |
Financial Markets |
institutions through which savers can directly provide funds to borrowers |
The bond market |
a bond is a certificate of indebtness |
The stock market |
a stock is a claim to partial ownership in a firm |
Financial Intermediaries |
institutions through which savers can indirectly provide funds to borrowers |
3 types of financial intermediaries |
1. Banks 2. Mutual Funds: sell shares and use the proceeds to buy stocks and bonds 3. other institutions: Credit unions, pension funds, insurance |
Market for loanable funds |
the market in which those want to save supply funds and those who want to borrow to invest demand funds |
Loanable Funds |
refer to all income that people have chosen to save and lend out, rather than use for their own consumption, and to the amount that investors have chosen to borrow to fund new investment projects |
Saving Incentives |
increasing the supply of loanable funds |
Investment incentive |
an investment tax credit which gives a tax advantage to any firm building a new factory or buying a new piece of equipment |
3 characteristics of bonds |
1. a bonds term- whether short term or long term (prefer short term) 2.credit risk: the probability that the issuer fails to make payments 3. tax treatment |
municipal bonds |
bonds issued by state and local government- exempted from tax |
Bond prices |
are always negatively affected by interest rates |
equity finance |
the sale of stocks to raise money |
debt finance |
the sale of bonds to raise money |
GDP equation |
Y=C+I+G+Nx Y = GDP, output, total income, total expenditure C = consumption I = investment G = government purchases of goods and services NX = export - imports T=Tax |
Closed Economy |
one that does not interact with other economies |
Private Saving Equation |
Y-C-T= |
private saving income |
the income that households have left after paying for tax and consumption and tax |
National Savings Equation (investment is national saving) |
Y-C-G= |
Calculate Tax |
Government deficit= G-Public Saving |
Public Saving Equation (gov. saving) |
T-G= |
crowd out effect |
decrease in investment that results from government borrowing |
As an alternative to selling shares of stock as a means of raising funds, a large company could, instead |
sell bonds |
Long term bonds are |
riskier than short- term bonds, and so interest rates on long- term bonds are usually higher than interest rates on short term bonds |
Owners of municipal bonds |
are not requires to pay federal income tax on the interest income |
The primary economic function of the financial system is to |
match one person's saving with another person's investment. |
Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else, |
their investments are being financed by someone else's saving. |
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called |
credit risk. |
When a large, well-known corporation wishes to borrow directly from the public, it can |
sell bonds |
Which of the following statements about the term of a bond is correct? |
Interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that |
Bond A has a term of 20 years and Bond B has a term of 1 years. |
Two of the economy's most important financial intermediaries are |
banks and mutual funds |
A bond is a |
certificate of indebtedness. |
Long-term bonds are |
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
If the government's expenditures exceeded its receipts, it would likely |
sell bonds directly to the public. |
Two bonds have the same term to maturity. The first was issued by a state government and the probability of default is believed to be low. The other was issued by a corporation and the probability of default is believed to be high. Which of the following is correct? |
Because of the differences in tax treatment and credit risk, the corporate bond should have the higher interest rate. |
Assume the bonds below have the same term and principal and that the state or local government that issues the municipal bond has a good credit rating. Which list has bonds correctly ordered from the one that pays the highest interest rate to the one that pays the lowest interest rate? |
corporate bond, U.S. government bond, municipal bond |
The sale of stocks |
to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance. |
Stock represents |
-a claim to a share of the profits of a firm. --ownership in a firm. ---equity finance. |
Which of the following bonds has the highest interest rate? |
a long term and a high credit risk. |
If a firm sells a total of 100 shares of stock, then |
each share represents ownership of 1 percent of the firm. |
A closed economy |
does not trade with other economies. |
A closed economy |
-does not engage in international trade of goods and services. --does not engage in international borrowing or lending. |
In a closed economy, what does (T - G) represent? |
public saving |
In a closed economy, what does (Y - T - C) represent? |
private saving |
In a closed economy, national saving equals |
-investment. --income minus the sum of consumption and government purchases. ---private saving plus public saving. |
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption equals 7,500, and government purchases equal 2,000. What is national saving? |
-500 500 2,000 Correct None of the above is correct. |
For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving? |
$2 trillion and $1 trillion, respectively |
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national Refer to Scenario 26-1. For this economy, investment amounts to |
$15,000. |
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national Refer to Scenario 26-1. This economy's government is running a |
budget deficit of $3,000. |
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national Refer to Scenario 26-1. For this economy, consumption amounts to |
$60,000. |
Which of the following would a macroeconomist consider as investment? |
Charlie builds a new coffee shop |
The slope of the demand for loanable funds curve represents the |
negative relation between the real interest rate and investment. |
If Congress increased the tax rate on interest income, investment |
and saving would decrease. |
If a reform of the tax laws encourages greater saving, the result would be |
lower interest rates and greater investment. |
A larger budget surplus |
reduces the interest rate and raises investment. |
A larger budget deficit |
raises the interest rate and reduces investment |
In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the |
supply of loanable funds shifted to the left. |
Institutions that help to match one person's saving with another person's investment are collectively called the |
financial system |
Given that Monika's income exceeds her expenditures, Monika is best described as a |
saver or as a supplier of funds |
Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else, |
their consumption expenditures are being financed by someone else's saving |
At the broadest level, the financial system moves the economy's scarce resources from |
savers to borrowers |
The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called |
credit risk |
As an alternative to selling shares of stock as a means of raising funds, a large company could, instead |
sell bonds |
Two of the economy's most important financial intermediaries are |
banks and mutual funds |
A bond is a |
certificate of indebtedness |
If the government's expenditures exceeded its receipts, it would likely |
sell bonds directly to the public |
The sell of bonds to raise money is called |
debt finance, while the sale of stocks to raise funds is called equity finance |
What makes the interest rate on a bond higher than normal? |
both high credit risk and long time |
As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is |
borrowing directly |
financial system |
institutions that match one person's savings with another person's invesments |
savers and borrowers |
people who lend money, people who need to borrow |
2 categories of financial institutions |
financial markets and financial intermediaries |
financial markets |
institutions where one who wants to save can directly supply money to those who want to borrow. ex: bond markets and stock markets |
bond |
an iou that specifies the indebtness of a borrower to a supplier. has a date of maturity when it must be paid with interest |
3 characteristics of a bond |
term: length of time until it matures. credit risk: probability borrower will fail to pay. tax treatment: the way tax laws affect one's bond |
perpetuity |
bond that never matures |
default |
when a borrower fails to pay a bond |
junk bond |
high credit risks meaning they may never be paid. have very high interest rates to make up for that |
municipal bonds |
state/local government bonds where buyers don't pay an income tax. low interest rates |
stocks |
claim to partial ownership and profit of a firm. stocks are sold separately outside of business in stock exchanges |
equity finance |
sale of a stock for money |
debt finance |
sale of bonds for money |
stock index |
average of a group of stock prices. show buyers what's good and what's not |
financial intermediaries |
institutions where savers directly provide funds to borrowers |
banks |
take deposits from savers and use that money to provide loans to borrowers. the interest they pay tos savers is lower than the interest they demand form borrowers so that they can make money |
mediums of exchange |
debit cards, checks, etc that are used to engage in transactions |
mutual funds |
institutions that sell shares to the public and buy portfolios of stocks and bonds. decrease risk of shareholders because their money is invested in multiple companies |
index funds |
mutual funds that buy all stocks of a given stock index |
3 key numbers of following a stock |
price: interest rate, dividend: profits paid to shareholders by companies, price-earnings ratio: price of stock/amount earned per share in the last year (higher p/e means an expensive stock) |
6 elements of financial crisis |
large decline in prices, insolvencies, decline in confidence, credit crunch, economic downtown, vicious circles |
accounting |
how various numbers are defined and added |
nation saving |
total income of economy that remains after taking out consumption and government purchases. s=i, s=y-c-g-nx |
saving must equal |
investment |
private saving |
amount households have left after paying taxes and consumption |
public saving |
amount government has left after paying for its spending |
saving is money towards _____, investment is money towards _______ |
banks, capital |
market for loanable funds |
hypothetical situation where all savers and borrowers deal with their money in the same market. saving is the supply of the market, investment is the demand of the market |
supply and demand curve of market for loanable funds |
demand is downward because people don't borrow when interest rates are high. supply is upward because people loan money when interest is high |
3 steps of analyzing policies |
is the shift in supply or demand? which way is the shift? how is equilibrium affected |
policy 1: saving incentives |
reform taxes so that it isn't as expensive to save. supply increases, shifts to right: greater saving, lower interest rates, greater investment |
policy 2: investment incentives |
investment tax credit that gives firms tax advantage when they're building new factories or buying equipment. increases demand, shifts to the right: greater investment, interest rates, and saving |
policy 3: government budget deficits |
government debt results when gov. borrows money from bonds to relieve defecits. causes a decrease in supply, shift to the left: lower interest rates, lower investment |
policy 3: government budget surplus |
increase in supply, shift to the right: reduces interest rates, encourages investment |
interest rates are equal to |
the price of loanable funds |
crowding out |
decrease in investment because of government borrowing |
at the broadest level the financial system moves economy's scarce resources from |
savers to borrowers |