Chapter 13 Saving, Investment, and the Financial System 2.When a large, well-kno
ID: 1204194 • Letter: C
Question
Chapter 13 Saving, Investment, and the Financial System
2.When a large, well-known corporation wishes to borrow directly from the public, it can
A.sell bonds.
B.sell shares of stock.
C.go to a bank for a loan.
D.All of the above are correct.
3.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.
B.The term of a bond is determined entirely by its credit risk.
C.The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond.
D.Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
4.The economy’s two most important financial markets are
A.the investment market and the saving market.
B.the bond market and the stock market.
C.banks and the stock market.
D,financial markets and financial institutions.
5.Two of the economy’s most important financial intermediaries are
A.suppliers of funds and demanders of funds.
B.banks and the bond market.
C.the stock market and the bond market.
D. banks and mutual funds.
6. We associate the term debt finance with
A.the bond market, and we associate the term equity finance with the stock market.
B.the stock market, and we associate the term equity finance with the bond market.
C.financial intermediaries, and we associate the term equity finance with financial markets.
D.financial markets, and we associate the term equity finance with financial intermediaries.
7. Northwest Wholesale Foods sells common stock. The company is using
A.equity financing and the return shareholders earn is fixed.
B.equity financing and the return shareholders earn depends on how profitable the company is.
C.debt financing and the return shareholders earn is fixed.
D.debt financing and the return shareholders earn depends on how profitable the company is.
8. If the tax revenue of the federal government exceeds spending, then the government necessarily
A.runs a budget deficit.
B.runs a budget surplus.
C.runs a national debt.
D.will increase taxes.
9. The source of the supply of loanable funds
A. is saving and the source of demand for loanable funds is investment.
B. is investment and the source of demand for loanable funds is saving.
C. and the demand for loanable funds is saving.
D. and the demand for loanable funds is investment.
10.What would happen in the market for loanable funds if the government were to increase the tax on interest income?
A.Interest rates would rise.
B. Interest rates would be unaffected.
C. Interest rates would fall.
D. The effect on the interest rate is uncertain.
11. If Congress increased the tax rate on interest income, investment
A.would increase and saving would decrease.
B.would decrease and saving would increase.
C.and saving would increase.
D.and saving would decrease.
12. Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate
A.and investment both would increase.
B.and investment both would decrease.
C.would increase and investment would decrease.
D. would decrease and investment would increase.
13. If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would
A. rise.
B. fall.
C.be unchanged.
D.move in an uncertain direction.
14.A larger budget surplus
A.raises the interest rate and investment.
B.reduces the interest rate and investment.
C.raises the interest rate and reduces investment.
D.reduces the interest rate and raises investment.
15.An increase in the budget deficit
A.makes investment spending fall.
B.makes investment spending rise.
C.does not affect investment spending.
D.may increase, decrease, or not affect investment spending.
16. Crowding out occurs when investment declines because
A.a budget deficit makes interest rates rise.
B.a budget deficit makes interest rates fall.
C.a budget surplus makes interest rates rise.
D.a budget surplus makes interest rates fall.
Explanation / Answer
2. Option B, To sell directly to the public, shares should be sold to the public.
3. Option D, Term of the bond is the maturity time of the bond.
4. Option C. financial market are markets where trading of securities, commodities etc takes place.
5. Option D, fiunancial intermediaries provide an indorect link between savers and investors.
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