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Exam 10: Savings, Investment Spending, and the Financial System

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Question 111

Multiple Choice

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The _____ money paid back after borrowing money, the _____ the interest rate.

A) more; higher
B) less; higher
C) more; lower
D) There is not enough information to determine the answer.

E) B) and D)
F) A) and C)

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Question 112

Multiple Choice

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Use the following to answer questions : Figure: The Market for Loanable Funds II -(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. Other things being equal, an increase in taxes on savings and investment income will shift _____ to the _____ and _____ the interest rate.

A) demand; right; increase
B) demand; left; decrease
C) supply; right; decrease
D) supply; left; increase

E) A) and B)
F) B) and D)

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Question 113

True/False

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A life insurance company is a financial intermediary that sets up a stock portfolio of shares of companies and then sells shares of the stock portfolio to investors.

The market for loanable funds is in equilibrium. All else equal, the federal government has eliminated taxes on interest earned from savings. Describe how this will affect the market for loanable funds, the equilibrium interest rate, and the equilibrium quantity of loanable funds.

An increase in the demand for loanable funds would most likely be caused by a(n) :

Use the following to answer questions : -(Table: Investment Spending, Private Spending, and Capital Inflows) Northlandia has a _____, while Southlandia has a _____.

Your grandmother has promised you $1,000 when you graduate in one year. At a 6% annual interest rate, you can borrow $943.40 and pay it back with your grandmother's gift at graduation.

Generally bonds are considered to be riskier than stocks.

Use the following to answer questions: Table: Investment Projects -(Table: Investment Projects) Look at the table Investment Projects. If the market interest rate declines from 15% to 11%, then the amount of investment demanded will increase by:

In a simple closed economy, all investment spending must come from:

Which of the following is TRUE of an open economy?

An amount that would equal a particular future value if deposited today at the prevailing interest rate is the:

If Mega Corp. borrows $9,000 and agrees to pay the lender $10,000 in one year, the annual interest rate on the loan is approximately:

Usually the rate of return on stock is lower than the rate of return on bonds.

Explain how fluctuations in asset prices contributed to the financial crisis of 2008.

Higher interest rates will lead to increased investment spending.

A household's wealth is:

If a company fails and declares bankruptcy, its physical and financial assets must be used to pay its bondholders before the stockholders can be paid.

A government has a budget deficit in an open economy. This means:

If you borrow money from a bank to buy a house, the mortgage (loan) is a financial asset for you and a liability for the bank.