Question 1

Which of the following best describes the role of the financial system in an economy?

Accepted Answer

It matches the saving of one person with the investment of another.

Question 2

A bond is characterized by all of the following EXCEPT:

Accepted Answer

A claim to partial ownership in a firm.

Question 3

Which formula correctly represents private saving in a closed economy?

Accepted Answer

$Y - T - C$

Question 4

Suppose a government has tax revenue of $T = 3$ trillion and government spending of $G = 2.5$ trillion. What is the public saving?

Accepted Answer

$T - G = 0.5$ trillion

Question 5

Which of the following is an example of investment in the sense used by economists?

Accepted Answer

General Motors spends $250 million to build a new factory.

Question 6

If the government runs a budget deficit, what is the effect on the supply of loanable funds?

Accepted Answer

The supply of loanable funds decreases.

Question 7

Which equation correctly represents national saving in a closed economy?

Accepted Answer

$Y - C - G$

Question 8

What is the main advantage of mutual funds for individual savers?

Accepted Answer

They allow savers to diversify their investments.

Question 9

If the interest rate increases, what happens to the quantity of loanable funds supplied?

Accepted Answer

It increases because saving becomes more attractive.

Question 10

A municipal bond typically offers which advantage compared to other bonds?

Accepted Answer

Interest income is often tax-exempt.

Question 11

Which of the following would be considered equity finance?

Accepted Answer

Selling stock to raise capital.

Question 12

If a government introduces a tax incentive for saving, what is the expected effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds increases, lowering the equilibrium interest rate.

Question 13

Which of the following is NOT a characteristic that differentiates bonds?

Accepted Answer

Dividend payout.

Question 14

If the government provides an investment tax credit, what is the likely effect on the market for loanable funds?

Accepted Answer

The demand for loanable funds increases, raising the equilibrium interest rate.

Question 15

Which of the following is a direct financial market transaction?

Accepted Answer

An individual purchases a corporate bond.

Question 16

What is the effect of a government budget deficit on long-run economic growth?

Accepted Answer

It reduces investment, which lowers the economy's growth rate and future standard of living.

Question 17

Which formula represents a budget deficit?

Accepted Answer

$G - T$

Question 18

A stockholder is entitled to which of the following?

Accepted Answer

A share of the firm's profits.

Question 19

Which of the following is NOT considered investment in macroeconomics?

Accepted Answer

Buying shares of a mutual fund.

Question 20

If GDP ($Y$) is $10$ trillion, consumption ($C$) is $6.5$ trillion, and government spending ($G$) is $2$ trillion, what is national saving in a closed economy?

Accepted Answer

$Y - C - G = 10 - 6.5 - 2 = 1.5$ trillion

The Financial System: Institutions, Saving, and Investment

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