correct answers ch. 26

8/2/2019 Correct Answers Ch. 26

1/15

If the tax revenue of the federal government exceeds spending, then the government necessarily

Student Response

1. will increase taxes.

2. runs a budget deficit.

3. runs a balanced budget.

4. runs a national debt.

5. runs a budget surplus.

An increase in the

Student Response

1. budget deficit makes investment spending rise.

2. budget surplus may increase, decrease, or not affect investment spending.

3. budget deficit may increase, decrease, or not affect investment spending.

4. budget deficit does not affect investment spending.

5. budget deficit makes investment spending fall.

Score: 1/1


2/15

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, andchairs.

Student Response

1. These purchases are called consumption. If you raise the funds from others to purchase them you are a borrower.

2. These purchases are called consumption. If you raise the funds from others to purchase them you are a saver.

3. These purchases are called capital investment. If you raise the funds from others to purchase them you are a saver.

4. These purchases are called capital investment. If you raise the funds from others to purchase them you are a borrower.

5. These purchases are called consumption. If you raise the funds from others to purchase them you are a debtor.

Score: 1/1

Which of the following is correct?

Student Response

1. The maturity of a bond refers to the amount to be paidback.

2. All of the above are correct.

3. A bond buyer cannot sell a bond before it matures.

4. The principal of the bond refers to the person selling

the bond.

5. None of the above is correct.


3/15

Score: 1/1

What would happen in the market for loanable funds if the government were to decrease the tax rate on interestincome?

Student Response

1. The demand for loanable funds would shift leftward,

the supply of loanable funds would shift rightward andinvestment would increase.

2. The supply of loanable funds would shift leftward and

investment would decrease.

3. The supply of loanable funds would shift rightward

and investment would increase.

4. The demand for loanable funds would shift leftwardand investment would decrease.

5. The demand for loanable funds would shift rightward

and investment would increase.

Score: 1/1

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expectthis to have on the stock of companies such as John Deere that manufacture farm equipment?

Student Response


4/15

1. raise the supply of the existing shares of stock, causing the price to fall

2. decrease the supply of the existing shares of stock and the demand for existing shares of the stock, causing the price to fall

3. raise the supply of the existing shares of stock, causing the price to rise

4. raise the demand for existing shares of the stock, causing the price to rise

5. decrease the demand for existing shares of the stock, causing the price to fall

Score: 1/1

Which of the following lists correctly identifies the four expenditure categories of GDP?

Student Response

1. consumption, government purchases, investment, exports

2. consumption, government purchases, investment, savings

3. consumption, investment, depreciation, net-exports

4. consumption, saving, investment, depreciation,

5. consumption, government purchases, investment, net-exports

Score: 1/1

A larger budget surplus


5/15

Student Response

1. reduces the interest rate but has no effect on investment.

2. reduces the interest rate and raises investment.

3. raises the interest rate and reduces investment.

4. reduces the interest rate and investment.

5. raises the interest rate and investment.

Score: 1/1

Compared to short-term bonds, other things the same, long-term bonds generally have

Student Response

1. more risk and so they pay higher interest rates.

2. about the same risk and so they pay about the same interest rate.

3. less risk and so they pay higher interest rates.

4. more risk and so they pay lower interest rates.

5. less risk and so they pay lower interest rates.

Score: 1/1


6/15

An increase in the

Student Response

1. budget surplus may increase, decrease, or not affect investment spending.

2. budget deficit may increase, decrease, or not affect investment spending.

3. budget deficit makes investment spending fall.

4. budget deficit does not affect investment spending.

5. budget deficit makes investment spending rise.

Score: 1/1

Retained earnings are

Student Response

1. the amount of revenue a corporation receives for the sale of its products minus its costs of production as measured by its

accountants.

2. computed by multiplying the dividend yield by the price of the stock.

3. earnings of a company that are retained by the stockholders.

4. the single most important piece of information about a stock.

5. earnings of a company that are not paid out to stockholders.


7/15

Score: 1/1

In the market for loanable funds, the interaction of the demand for, and supply of, loanable funds determines theequilibrium level of

Student Response1. the inflation rate.

2. the real interest rate.

3. investment.

4. gross domestic product.

5. the nominal interest rate.

Score: 1/1

Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two

demand-for-loanable-funds curves.

Refer to Figure 26-2. What is measured along the horizontal axis of the graph?

Student Response


8/15

1. the quantity of loanable funds

2. the size of the government budget deficit or surplus

3. the nominal interest rate

4. real GDP

5. the real interest rate

Score: 1/1

A change in the tax laws that increases the supply of loanable funds will have a bigger effect on investment when

Student Response1. both the demand for and supply of loanable funds are unit elastic.

2. the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic.

3. both the demand for and supply of loanable funds are more elastic.

4. the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic.

5. both the demand for and supply of loanable funds are more inelastic.

Score: 1/1

Which of the following equations represents GDP for a closed economy?


9/15

Student Response

1. I= Y- C+ G

2. Y= C+ I+ G

3. S= I - G

4. Y= C+ I

5. Y= C+ I+ G + T

Score: 1/1

A corporation's earnings are

Student Response

1. the amount of revenue it receives for the sale of its products minus its costs of production as measured by both implicit and explicit costs.

2. the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants.

3. the amount of revenue it receives for the sale of its products minus its costs of production as measured by its accountants minus the dividendsout.

4. the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists mithe dividends paid out.

5. the amount of revenue it receives for the sale of its products minus its direct and indirect costs of production as measured by its economists.

Score: 1/1


10/15

Crowding out occurs when

Student Response

1. investment declines because a budget deficit makes interest rates fall.

2. investment declines because a budget deficit makes interest rates rise.

3. investment declines because a budget surplus makes interest rates rise.

4. investment increases because a budget deficit makes interest rates rise.

5. investment declines because a budget surplus makes interest rates fall.

Score: 1/1

Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayers interest income was taxfree. This would shift the

Student Response

1. supply of loanable funds to the left, causing interest rates to rise.

2. demand for loanable funds to the left, causing interest rates to fall.

3. demand for loanable funds to the right, causing interest rates to rise.

4. supply of loanable funds to the right, causing interest rates to fall.5. demand for loanable funds to the left, supply of loanable funds to the left, causing interest rates to fall.

Score: 1/1

The purchase of a new house is the one form of


11/15

Student Response

1. household spending that does not contribute to GDP.

2. household spending that is investment rather than consumption.

3. household investment that is part of consumption.

4. household spending that is not counted as part of investment in the national income accounts.

5. investment that is financed by private saving rather than public saving.

Score: 1/1

Suppose the government ran a budget surplus in 2008 and a larger surplus in 2009. The loanable funds model would predict that, as aresult of the increase in the surplus,

Student Response

1. both the government debt and interest rates increased between 2008 and 2009.

2. both the government debt and interest rates decreased between 2008 and 2009.

3. the government debt decreased but interest rates remained the same between 2008 and 2009.

4. the government debt decreased and interest rates increased between 2008 and 2009.

5. the government debt increased and interest rates decreased between 2008 and 2009.Score: 1/1

Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Mo Inc. adds finished goods that it cannot sellto its inventory. Whose transaction would be an act of investment in the language of macroeconomics?


12/15

Student Response

1. only Larrys

2. only Mo Incs.

3. only Larrys and Curlys.

4. only Larrys and Mos.

5. only Curly Corporations

Score: 1/1

A corporations earnings are the amount of revenue it receives for the sale of its products

Student Response

1. minus its direct and indirect costs as measured by its economists. Earnings must be paid out as dividends.

2. minus its cost of production as measured by its accountants. Earnings may be paid out as dividends or retained by the corporation.

3. minus its cost of production as measured by its accountants. Earnings must be paid out as dividends.

4. minus its explicit and implicit cost of production whether measured by accountants or econmomists. Earnings may be paid out as dividends or

retained by the corporation.

5. minus its direct and indirect cost as measure by its economists. Earnings may be paid out as dividends or retained by the corporation.

Score: 1/1


13/15

A larger budget surplus

Student Response

1. reduces the interest rate and raises investment.

2. reduces the interest rate and investment.

3. raises the interest rate and investment.

4. reduces the interest rate but has no effect on investment.

5. raises the interest rate and reduces investment.

Score: 1/1

People who buy stock in a corporation such as General Electric become

Student Response

1. part owners of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.

2. part owners of General Electric, so the benefits of holding the stock depend on General Electric's sales.

3. part owners of General Electric, so the benefits of holding the stock depend on General Electric's profits.

4. creditors of General Electric, but the benefits of holding the stock do not depend on General Electric's profits.

5. creditors of General Electric, so the benefits of holding the stock depend on General Electric's profits.

Score: 1/1

Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?


14/15

Student Response

1. Any of the above events would shift the supply curve from S1 to S2.

2. In response to tax reform, households are encouraged to save more than they previously saved.

3. Government goes from running a balanced budget to running a budget deficit.

4. In response to tax reform, firms are encouraged to invest more than they previously invested.

5. In response to tax reform, households are encouraged to save less than they previously saved.

Score: 1/1

Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2?

Student Response

1. A change in the tax laws encourages people to consume less and save more.

2. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new facto

3. An increase in the real interest rate.

4. A change in the tax laws encourages people to consume more and save less.

5. The government goes from running a budget deficit to running a budget surplus.

Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called

Student Response

1. an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make invest


15/15

2. an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend.

3. a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend.

4. an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to save up to be able to mfuture investments.

5. a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make invest

Score: 1/1

correct answers ch. 26

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