Question 1

Which of the following is an example of equity finance?

Accepted Answer

A)  Corporate bonds.
B)  Bank loan.
C)  All of these answers are equity finance.
D)  Government bonds.
E)  Company shares.F) D) and E)
G) B) and D) E

Question 2

If the government wants to increase the level of employment and real output, it could

Accepted Answer

A)  increase corporate income taxes.
B)  provide an investment tax credit.
C)  decrease expenditures on roads and schools.
D)  increase the personal income tax.E) C) and D)
F) None of the above B

Question 3

If a series of major technological breakthroughs occur in the economy at the same time, then the most likely outcome would be that the economy's

Accepted Answer

A)  demand curve for loanable funds will shift downward.
B)  demand curve for loanable funds will shift upward.
C)  consumption curve will shift downward.
D)  position along the existing demand curve for loanable funds will move upward.E) All of the above
F) None of the above

Question 4

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the

Accepted Answer

A)  real interest rate should fall.
B)  real interest rate should rise.
C)  impact on the real interest rate is indeterminate.
D)  real interest rate should not change.E) None of the above
F) A) and B)

Question 5

The major advantage of investment funds is that

Accepted Answer

A)  they allow people with limited funds to diversify their investment.
B)  they encourage households to spend their money on current consumption.
C)  fund managers are replaced by household administrators.
D)  they always use index funds to limit investor risk.E) A) and C)
F) B) and D)

Question 6

The quantity of loanable funds supplied is

Accepted Answer

A)  positively related to the level of income.
B)  negatively related to the price level.
C)  positively related to the price level.
D)  positively related to the interest rate.E) A) and C)
F) A) and B)

Question 7

SA government bonds pay less interest than corporate bonds issued by SA companies because the government bonds carry less credit risk.

Accepted Answer

A) True 
 B)False

Question 8

A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase the quantity demanded of loanable funds.

Accepted Answer

A) True 
 B)False

Question 9

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy...

Question 10

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment spending becomes more expensive, so people invest less.As the interest rate rises saving becomes more rewarding, so people want to save more.The inverse relation between interest and borrowing is reflected in the downward slope of the demand for loanable funds curve.The positive relation between interest and saving is reflected in the upward slope of the supply of loanable funds curve.

Question 11

In a closed economy, investment is always equal to saving regardless of where the saving came from - public or private sources.

Accepted Answer

A) True 
 B)False

Question 12

Consider a closed economy (with no foreign trade) .Assuming the economy is in equilibrium, use the following information to determine the amount of funds supplied to the loanable funds market.   Consumption Spending  R350 billior  Net Taxes  R270 billior  Household Saving  R250 billion  Investment Spending  R220 billion  Government Purchases  R300 billior \begin{array}{ll}	ext { Consumption Spending } & 	ext { R350 billior } \	ext { Net Taxes } & 	ext { R270 billior } \	ext { Household Saving } & 	ext { R250 billion } \	ext { Investment Spending } & 	ext { R220 billion } \	ext { Government Purchases } & 	ext { R300 billior }\end{array} Consumption Spending  Net Taxes  Household Saving  Investment Spending  Government Purchases ​ R350 billior  R270 billior  R250 billion  R220 billion  R300 billior ​

Accepted Answer

A)  R220 billion
B)  R250 billion
C)  R270 billion
D)  R300 billion E) C) and D)
F) A) and B)

Question 13

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for...

Question 14

If the supply of loanable funds is very inelastic (steep) , which policy would likely increase saving and investment the most?

Accepted Answer

A)  A reduction in the budget deficit.
B)  An increase in the budget deficit.
C)  An investment tax credit.
D)  None of these answers.E) A) and B)
F) A) and D)

Question 15

A financial intermediary is a middleperson between

Accepted Answer

A)  buyers and sellers.
B)  banks and the government.
C)  borrowers and lenders.
D)  labour unions and firms.E) None of the above
F) A) and D)

Question 16

Which of the following statements is true?

Accepted Answer

A)  Long term bonds tend to pay less interest than short term bonds.
B)  Government bonds pay less interest than comparable corporate bonds.
C)  Investment funds are riskier than single stock purchases because the performance of so many different firms can affect the return of a mutual fund.
D)  A stock index is a directory used to locate information about selected stocks.E) B) and C)
F) A) and C)

Question 17

What are the basic differences between bonds and stocks?

Accepted Answer

A bond is a certificate of indebtedness ...

Question 18

Which of the following financial market securities would probably pay the lowest interest rate?

Accepted Answer

A)  A bond issued by a start-up company.
B)  A government bond issued by the government of France.
C)  A bond issued by a blue chip company.
D)  An investment fund with a portfolio of corporate bonds issued by blue chip companies.E) A) and B)
F) A) and C)

Question 19

If SA citizens become thriftier, we would expect

Accepted Answer

A)  the supply of loanable funds in the SA loanable funds market to shift to the right and the real interest rate to fall.
B)  the demand for loanable funds in the SA loanable funds market to shift to the right and the real interest rate to rise.
C)  the demand for loanable funds in the SA loanable funds market to shift to the right and the real interest rate to fall.
D)  the supply of loanable funds in the SA loanable funds market to shift to the right and the real interest rate to rise.E) None of the above
F) A) and B)

Question 20

People who buy shares in a firm have loaned money to the firm.

Accepted Answer

A) True 
 B)False

Exam 7: Saving, Investment and the Financial System

Which of the following is an example of equity finance?

Correct Answer
verified
E

If the government wants to increase the level of employment and real output, it could

Correct Answer
verified
B

If a series of major technological breakthroughs occur in the economy at the same time, then the most likely outcome would be that the economy's

Correct Answer
verified

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the

Correct Answer
verified

The major advantage of investment funds is that

Correct Answer
verified

The quantity of loanable funds supplied is

Correct Answer
verified

SA government bonds pay less interest than corporate bonds issued by SA companies because the government bonds carry less credit risk.

Correct Answer
verified

A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase the quantity demanded of loanable funds.

Correct Answer
verified

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct Answer
verified
As shown in the graph below, the economy...
View Answer

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

In a closed economy, investment is always equal to saving regardless of where the saving came from - public or private sources.

Correct Answer
verified

Correct Answer
verified

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct Answer
verified
Market for...
View Answer

If the supply of loanable funds is very inelastic (steep) , which policy would likely increase saving and investment the most?

Correct Answer
verified

A financial intermediary is a middleperson between

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

What are the basic differences between bonds and stocks?

Correct Answer
verified
A bond is a certificate of indebtedness ...
View Answer

Which of the following financial market securities would probably pay the lowest interest rate?

Correct Answer
verified

If SA citizens become thriftier, we would expect

Correct Answer
verified

People who buy shares in a firm have loaned money to the firm.

Correct Answer
verified

Exam 7: Saving, Investment and the Financial System

Which of the following is an example of equity finance?

Correct AnswerverifiedE

If the government wants to increase the level of employment and real output, it could

Correct AnswerverifiedB

If a series of major technological breakthroughs occur in the economy at the same time, then the most likely outcome would be that the economy's

Correct AnswerverifiedShow Answer

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, the

Correct AnswerverifiedShow Answer

The major advantage of investment funds is that

Correct AnswerverifiedShow Answer

The quantity of loanable funds supplied is

Correct AnswerverifiedShow Answer

SA government bonds pay less interest than corporate bonds issued by SA companies because the government bonds carry less credit risk.

Correct AnswerverifiedShow Answer

A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase the quantity demanded of loanable funds.

Correct AnswerverifiedShow Answer

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below, the economy...View AnswerShow Answer

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

In a closed economy, investment is always equal to saving regardless of where the saving came from - public or private sources.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Draw and label a graph showing equilibrium in the market for loanable funds.

Correct AnswerverifiedMarket for...View AnswerShow Answer

If the supply of loanable funds is very inelastic (steep) , which policy would likely increase saving and investment the most?

Correct AnswerverifiedShow Answer

A financial intermediary is a middleperson between

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

What are the basic differences between bonds and stocks?

Correct AnswerverifiedA bond is a certificate of indebtedness ...View AnswerShow Answer

Which of the following financial market securities would probably pay the lowest interest rate?

Correct AnswerverifiedShow Answer

If SA citizens become thriftier, we would expect

Correct AnswerverifiedShow Answer

People who buy shares in a firm have loaned money to the firm.

Correct AnswerverifiedShow Answer

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E

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B

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As shown in the graph below, the economy...
View Answer

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Market for...
View Answer

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A bond is a certificate of indebtedness ...
View Answer

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