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Which of the following people purchased the correct asset to meet his or her objective?


A) Michelle wanted to be a part owner of Mamma Rosa's Pizza, so she purchased a bond issued by Mamma Rosa's Pizza.
B) Tim wanted a high return, even if it meant taking some risk, so he purchased stock issued by Specific Electric instead of bonds issued by Specific Electric.
C) Jennifer wanted to buy equity in Honda, so she purchased bonds sold by Honda.
D) All of the above are correct.

E) A) and B)
F) B) and C)

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Jerry has the choice of two bonds, one that pays 5 percent interest and one that pays 2 percent interest. Which of the following is most likely?


A) The 2 percent bond is more risky than the 5 percent bond.
B) The 5 percent bond is a U.S. government bond, and the 2 percent bond is a junk bond.
C) The 2 percent bond has a longer term than the 5 percent bond.
D) The 2 percent bond is a municipal bond, and the 5 percent bond is a U.S. government bond.

E) A) and B)
F) A) and C)

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Which of the following statements is correct?


A) The expected future profitability of a corporation influences the demand for that corporation's stock.
B) When a corporation sells stock as a means of raising funds it is engaging in debt finance.
C) The owners of bonds sold by the Microsoft Corporation are part owners of that corporation.
D) All bonds are, by definition, perpetuities.

E) C) and D)
F) B) and C)

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Banks and mutual funds are examples of financial markets.

A) True
B) False

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Skeptics of government policy to reduce taxes on saving argue that it would primarily benefit the rich.

A) True
B) False

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Which of the following is both a store of value and a common medium of exchange?


A) corporate bonds
B) mutual funds
C) checking account balances
D) All of the above are correct.

E) B) and D)
F) None of the above

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Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. This economy's government is running a


A) budget deficit of $75.
B) budget deficit of $80.
C) budget deficit of $50.
D) budget deficit of $100.

E) B) and C)
F) A) and D)

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A closed economy does not engage in international trade, therefore


A) national saving is less than investment (S < I) .
B) net exports (NX) are zero.
C) Y - C - G > I.
D) national saving is zero.

E) B) and D)
F) B) and C)

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In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .

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national saving/inve...

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Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market?


A) an increase in the supply of or a decrease in the demand for loanable funds
B) an increase in the supply of or an increase in the demand for loanable funds
C) a decrease in the supply of or a decrease in the demand for loanable funds
D) a decrease in the supply of or an increase in the demand for loanable funds

E) All of the above
F) A) and D)

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Which of the following is a financial intermediary?


A) a mutual fund
B) the stock market
C) a U.S. government bond
D) a wealthy individual who regularly buys and holds large quantities of government bonds

E) A) and D)
F) B) and C)

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Figure 26-2. The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. 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? A)  the quantity of loanable funds B)  the size of the government budget deficit or surplus C)  the real interest rate D)  the nominal interest rate -Refer to Figure 26-2. What is measured along the horizontal axis of the graph?


A) the quantity of loanable funds
B) the size of the government budget deficit or surplus
C) the real interest rate
D) the nominal interest rate

E) A) and B)
F) A) and C)

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If the government's expenditures exceeded its receipts, it would likely


A) lend money to a bank or other financial intermediary.
B) borrow money from a bank or other financial intermediary.
C) buy bonds directly from the public.
D) sell bonds directly to the public.

E) A) and B)
F) All of the above

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What would happen in the market for loanable funds if the government were to increase the tax on interest income?


A) The supply of loanable funds would shift right.
B) The demand for loanable funds would shift right.
C) The supply of loanable funds would shift left.
D) The demand for loanable funds would shift left.

E) B) and C)
F) A) and B)

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In a closed economy, what remains after paying for consumption and government purchases is


A) national disposable income.
B) national saving.
C) public saving.
D) private saving.

E) A) and D)
F) None of the above

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Lenders buy bonds and borrowers sell them.

A) True
B) False

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


A) These purchases are called capital investment. If you raise the funds to purchase them from others you are a saver.
B) These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower.
C) These purchases are called consumption. If you raise the funds to purchase them from others you are a saver.
D) These purchases are called consumption. If you raise the funds to purchase them from others you are a borrower.

E) A) and D)
F) B) and C)

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The Dow Jones Industrial Average is now based on the prices of the stocks of


A) 30 major U.S. corporations.
B) 100 major U.S. corporations.
C) 500 representative U.S. corporations.
D) 1,000 representative U.S. corporations.

E) B) and C)
F) A) and B)

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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?

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A reduction in transfer paymen...

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Long-term bonds are


A) riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
B) riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
C) less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
D) less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

E) B) and D)
F) B) and C)

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