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166. Concerns about the bankruptcy of an appliance manufacturer diminish after a new CEO is appointed and some of the
company’s less productive factories are sold. What type of risk for bondholders falls? What happens to the interest rate on
this company’s bonds?
167. Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a
higher credit risk?
168. Bond A and Bond B are identical except Bond B has a longer term. Therefore, we expect Bond _____ to pay a higher
rate of interest.
169. Bonds issued by state and local governments are called _____ bonds. Bonds issued by financially shaky corporations
are called _____ bonds. Of these two, which type of bond usually pays a relatively higher interest rate?
170. If federal tax rates increased, what would happen to the interest rate on municipal bonds?
171. List three characteristics of a bond that would make its interest rate higher than otherwise.
172. Stock in Frozen Dreams, an ice cream manufacturer, has a price to earnings ratio of 24. Is this comparatively high or
low? What are two explanations for the size of this company’s price to earnings ratio?
173. How do banks make profits?
174. What is a mutual fund?
175. _____ and _____ are the two most important financial intermediaries.
176. The two most important financial markets are the _____ market and the _____ market.
177. In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is
investment?
178. In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500
billion, and investment is $400 billion. What are private saving, public saving and national saving?
179. In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government
has a budget surplus of $25, what are investment, taxes, private saving, and national saving?
180. In the terminology of macroeconomics, what’s the difference between a saver and an investor?
181. Robert buys bonds. Rachel buys a new truck for her landscaping business. Identify both as savers, investors, both, or
neither.
182. A _____ does not engage in international trade in goods and services and it does not engage in international
borrowing and lending.
183. National saving is the sum of _____ and _____. In a closed economy it is equal to _____ in equilibrium.
184. In a closed economy, Y - C - G equals _____. The variable Y is _____, C is _____, and G is _____.
185. The income that households have left after paying their taxes and paying for their consumption is known as _____.
186. Public saving is the difference between _____ and _____.
187. In macroeconomics, _____ refers to the purchase of new capital.
188. What variable adjusts to balance demand and supply in the market for loanable funds?
189. What is the source of the supply of loanable funds?
190. A higher interest rate makes _____ more attractive. Therefore the quantity of loanable funds supplied increases.
191. A higher interest rate makes _____ less attractive. Therefore the quantity of loanable funds demanded decreases.
192. What happens to desired investment spending if the interest rate rises? Is this response relevant to the supply of
loanable funds curve or the demand for loanable funds curve?
193. Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level?
How do desired saving and desired investment at this interest rate compare?
194. If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget
deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would
happen to interest rates?
195. Congress and the President implement an investment tax credit. Which curve in the market for loanable funds shifts,
which direction does it shift, and what happens to the interest rate?
196. When tax code changes increase saving incentives, the interest rate will _____ and investment will _____.
197. When tax code changes reduce saving incentives, the interest rate will _____ and investment will _____.
198. When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This
results in a(n) _____ in the interest rate and a(n) _____ in investment.
199. When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This
results in a(n) _____ in the interest rate and a(n) _____ in investment.
200. If the government budget deficit increases, which curve in the market for loanable funds shifts, which direction does
it shift, and what happens to the interest rate?
201. If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the
market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?
202. The interest rate will _____ and the quantity of loanable funds invested will _____ when the government decreases
the budget deficit.
203. When the government increases spending (holding taxes constant), the budget balance _____. This causes the interest
rate in the market for loanable funds to _____ and investment to _____.
204. When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting
change in investment due to this increased government borrowing is called _____.
205. An increase in the government budget deficit causes national saving to _____, the interest rate to _____, and
investment to _____.
206. Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve
in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and
what would happen to investment spending?
207. Which government policy raises the interest rate and raises investment spending?
208. If consumers reduced their spending, what would happen to the interest rate and investment?
209. A company is called insolvent when
a.
there is a rapid decline in an asset price.
b.
its debts exceed the value of its assets.
c.
there is a decline in confidence in the company.
d.
it experiences a credit crunch.
210. After 2012 when the U.S. economy recovered,
a.
the budget deficits shrank, and the increases in the debt-to-GDP ratio became larger.
b.
the budget deficits grew, and the decreases in the debt-to-GDP ratio became larger.
c.
the budget deficit shrank, and the increases in the debt-to-GDP ratio became smaller.
d.
the budget deficits grew, and the decreases in the debt-to-GDP ratio became smaller.
211. Woody wants to open a pet store and needs to buy a building. Both the nominal interest rate and the inflation rate
increase by 2 percent. Now, Woody
a.
will not buy the building.
b.
is more likely to buy the building.
c.
is less likely to buy the building.
d.
is just as likely to buy the building as before.
212. The nominal interest rate increases by 5 percent. What is the effect on investment?
a.
The real interest rate increases and investment increases
b.
The real interest rate decreases and investment decreases.
c.
The real interest rate increases and investment decreases.
d.
Cannot be determined from the given information
