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Review Quiz 8


Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

 1. 
Megasoft wants to finance the purchase of new equipment for developing security software called Doors, but they have limited internal funds. Megasoft will likely
a.
demand loanable funds by buying bonds.
b.
demand loanable funds by selling bonds.
c.
supply loanable funds by buying bonds.
d.
supply loanable funds by selling bonds.
 

 2. 
Which of the following is not an important stock exchange in the United States?
a.
New York Stock Exchange
b.
American Stock Exchange
c.
Chicago Mercantile Exchange
d.
NASDAQ
 

 3. 
Profits not paid out to stockholders are
a.
retained earnings.
b.
known as dividends.
c.
the denominator in the price-earnings ratio.
d.
All of the above are correct.
 

 4. 
Which of the following is correct?
a.
Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange.
b.
Most buyers of stocks and bonds prefer those issued by large and familiar companies.
c.
Banks charge borrowers a slightly lower interest rate than they pay to depositors.
d.
None of the above is correct.
 

 5. 
In a closed economy, what does (T - G) represent?
a.
national saving
b.
investment
c.
private saving
d.
public saving
 

 6. 
Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500 Consumption equals 7,500 and Government purchases equal 2,000. What are private saving, public saving, and national saving?
a.
1500, 1000, 500
b.
1000, 500, 1500
c.
500, 1500, 1000
d.
None of the above is correct.
 

 7. 
The Eye of Horus incense company has $10 million in cash which it has accumulated from retained earnings. It was planning to use the money to build a new factory. Recently, the rate of interest has increased. The increase in the rate of interest should
a.
not influence the decision to build the factory because The Eye of Horus doesn't have to borrow any money.
b.
not influence the decision to build the factory because its stockholders are expecting a new factory.
c.
make it more likely that The Eye of Horus will build the factory because a higher interest rate will make the factory more valuable.
d.
make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.
 

 8. 
Other things the same, a higher interest rate induces people to
a.
save more, so the supply of loanable funds slopes upward.
b.
save less, so the supply of loanable funds slopes downward.
c.
invest more, so the supply of loanable funds slopes upward.
d.
invest less, so the supply of loanable funds slopes downward.
 

 9. 
If there is surplus of loanable funds, then
a.
the supply for loanable funds shifts right and the demand shifts left.
b.
the supply for loanable funds shifts left and the demand shifts right.
c.
neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
d.
neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.
 

 10. 
If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is
a.
5 percent.
b.
1 percent.
c.
1.5 percent
d.
.67 percent.
 

 11. 
Suppose that a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium
a.
interest rates and the quantity of loanable funds rise.
b.
interest rates rise and the quantity of loanable funds fall.
c.
interest rates fall and the quantity of loanable funds rise.
d.
interest rates and the quantity of loanable funds fall.
 

 12. 
If Congress instituted an investment tax credit, the interest rate would
a.
rise and saving would rise.
b.
fall and saving would fall.
c.
rise and saving would fall.
d.
fall and saving would rise.
 

 13. 
Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?
a.
The interest rate and investment would fall.
b.
The interest rate and investment would rise.
c.
The interest rate would rise and investment would fall.
d.
None of the above is necessarily correct.
 

 14. 
A budget deficit
a.
changes the supply of loanable funds.
b.
changes the demand for loanable funds.
c.
changes both the supply of and demand for loanable funds.
d.
does not influence the supply of or the demand for loanable funds.
 

 15. 
If Canada increases its budget deficit, it will reduce
a.
private saving and so shift the supply of loanable funds left.
b.
investment and so shift the demand for loanable funds left.
c.
public saving and so shift the supply of loanable funds left.
d.
None of the above is correct.
 



 
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