1)When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds. a. True b. False 2. Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal. a. True b. False 3. Municipal bonds pay a relatively a. low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. b. low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. c. high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. d. high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. 4. What do we call financial institutions through which savers can indirectly provide funds to borrowers? a. stock markets b. financial institutions c. financial

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1)When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds

Economics Feb 09, 2021

1)When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling bonds.

	a.	True
	b.	False

2. Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

	a.	True
	b.	False

3. Municipal bonds pay a relatively

	a.	low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax.
	b.	low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.
	c.	high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay.
	d.	high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

4. What do we call financial institutions through which savers can indirectly provide funds to borrowers?

	a.	stock markets
	b.	financial institutions
	c.	financial markets
	d.	financial intermediaries

5. Which of the following are financial intermediaries?

	a.	both banks and mutual funds
	b.	banks but not mutual funds
	c.	mutual funds but not banks
	d.	neither banks or mutual funds

6. The primary advantage of mutual funds is that they

	a.	always make a return that "beats the market."
	b.	allow people with small amounts of money to diversify.
	c.	provide customers with a medium of exchange.
	d.	All of the above are correct.

7. The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

	a.	True
	b.	False

8. Consider the expressions T - G and Y - T - C. Which of the following statements is correct?

	a.	Each one of these is equal to national saving.
	b.	Each one of these is equal to public saving.
	c.	The first of these is private saving; the second one is public saving.
	d.	The first of these is public saving; the second one is private saving.

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.

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

	a.	an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend.
	b.	an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments.
	c.	a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend.
	d.	a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments.

10. When the government’s budget deficit increases

	a.	the government is borrowing less and public savings falls.
	b.	the government is borrowing less and public savings increases.
	c.	the government is borrowing more and public savings falls.
	d.	the government is borrowing more and public savings increases.

11. An increase in the government’s budget deficit means

	a.	public saving is greater than $0 and increasing.
	b.	public saving is greater than $0 and decreasing.
	c.	public saving is less than $0 and increasing.
	d.	public saving is less than $0 and decreasing.

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.

12. Refer to Figure 26-3. Which of the following movements shows the effects of households’ decision to save more?

	a.	a movement from Point A to Point B
	b.	a movement from Point F to Point A
	c.	a movement from Point C to Point F
	d.	a movement from Point B to Point C

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