Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
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1.
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Which of the following is correct?
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a.
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The maturity of a bond refers to the amount to be paid back.
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b.
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The principal of the bond refers to the person selling the bond.
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c.
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A bond buyer cannot sell a bond before it matures.
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d.
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None of the above are correct.
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2.
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Stephanie is interested only in the rate of interest and is willing to take a great deal of risk in exchange for a high return. She should look for bonds with
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a.
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tax exemptions and short terms.
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b.
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tax exemptions and long terms.
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c.
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no tax exemptions and short terms.
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d.
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no tax exemptions and long terms.
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3.
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World Wide Delivery Service Corporation develops a way to speed up their deliveries and reduce their costs. We would expect that this would
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a.
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raise the demand for existing shares of the stock, causing its price to rise.
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b.
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decrease the demand for existing shares of the stock, causing its price to fall.
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c.
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raise the supply of the existing shares of stock, causing its price to rise.
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d.
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raise the supply of the existing shares of stock, causing its price to fall.
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4.
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Other things being constant, when a business issues more stock, the
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a.
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supply of the stock is greater and thus the price will fall.
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b.
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supply of the stock is less and thus the price will rise.
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c.
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demand for the stock is greater and thus the price will rise.
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d.
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demand for the stock is less and thus the price will fall.
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5.
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The single most important piece of information about a stock is the
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a.
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price-earnings ratio.
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b.
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dividend.
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c.
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volume
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d.
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price.
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6.
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Volume, as reported in stock tables refers to the
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a.
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number of shares traded.
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b.
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percentage of shares outstanding traded.
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c.
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number of shares traded times the price they sold at.
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d.
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number of shares of a company traded divided by the shares of all companies traded.
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7.
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The country of Aquilonia does not trade with any other country. Its GDP is $30 billion. Its government purchases $5 billion worth of goods and services each year, collects $7 billion in taxes, and provides $3 billion in transfer payments to households. Private saving in Aquilonia is $5 billion. What is consumption and investment?
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a.
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$18 billion and $5 billion
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b.
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$21 billion and $4 billion
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c.
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$13 billion and $7 billion
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d.
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There is not enough information to answer the question.
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8.
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If the tax revenue of the federal government exceeds spending, then the government
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a.
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runs a budget deficit.
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b.
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runs a budget surplus.
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c.
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runs a national debt.
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d.
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will increase taxes.
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9.
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If the current market interest rate for loanable funds is below the equilibrium level, then there is a
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a.
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surplus of loanable funds and the interest rate will rise.
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b.
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shortage of loanable funds and the interest rate will rise.
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c.
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shortage of loanable funds and the interest rate will fall.
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d.
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surplus of loanable funds and the interest rate will fall.
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10.
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Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?
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a.
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The demand for loanable funds would shift left.
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b.
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The supply of loanable funds would shift left.
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c.
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The demand for loanable funds would shift right.
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d.
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The supply of loanable funds would shift right.
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11.
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If Canada increases its budget deficit, it will reduce
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a.
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private saving and so shift the supply of loanable funds left.
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b.
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investment and so shift the demand for loanable funds left.
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c.
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public saving and so shift the supply of loanable funds left.
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d.
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None of the above are correct.
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12.
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Interest rates fall and investment falls. Which of the following could explain these changes?
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a.
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the government goes from a surplus to a deficit
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b.
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the government repeals an investment tax credit
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c.
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the government replaces a consumption tax with an income tax
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d.
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None of the above are correct.
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Short Answer
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13.
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Explain why the demand for loanable funds slopes downward and the supply of loanable funds slopes upward.
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