Question 1

If the rate of return is lower than the cost of borrowing:

Accepted Answer

A)   an investor will lose money after paying back the loan.
B)   an investor should make the investment.
C)   a borrower will make money after taking out the loan.
D)   banks will offer more loans.E) C) and D)
F) B) and C)

Question 2

Savings and investment are equal:

Accepted Answer

A)   at equilibrium in the market for loanable funds.
B)   when banks regulate their flow.
C)   at the interest rate set by the Fed.
D)   when banks operate according to government regulations.E) B) and C)
F) A) and B)

Question 3

When a borrower fails to pay back a loan according to the agreed-upon terms, it is called:

Accepted Answer

A)   credit risk.
B)   default.
C)   adverse selection.
D)   asymmetric information.E) A) and D)
F) A) and C)

Question 4

Savings is considered the portion of income that is:

Accepted Answer

A)   not immediately spent on the consumption of goods and services.
B)   spent on productive inputs, such as factories, machinery, and inventories.
C)   placed in an individual's savings account.
D)   stored in any interest-bearing account.E) B) and D)
F) C) and D)

Question 5

Savers in the financial system make decisions about how to save their money by following the basic principles of:

Accepted Answer

A)   asset valuation.
B)   cost benefit analysis.
C)   rate of return.
D)   risk valuation.E) A) and B)
F) A) and D)

Question 6

An economy that interacts with other economies is a(n) :

Accepted Answer

A)   open economy.
B)   closed economy.
C)   international economy.
D)   global economy.E) B) and C)
F) None of the above

Question 7

The reduction in private borrowing caused by an increase in government borrowing is called:

Accepted Answer

A)   the crowding out effect.
B)   surplus investment.
C)   the dissaving effect.
D)   the savings effect.E) None of the above
F) A) and B)

Question 8

When markets are less liquid, the supply of loanable funds is _______ and the economy grows _______.

Accepted Answer

A)   lower; more slowly
B)   higher; more slowly
C)   lower; faster
D)   higher; fasterE) A) and B)
F) A) and C)

Question 9

When the government borrows to finance excess spending, it causes the _______ loanable funds to _______.

Accepted Answer

A)   demand for; increase
B)   demand for; decrease
C)   supply of; increase
D)   supply of; decreaseE) A) and B)
F) A) and C)

Question 10

In financial markets, buyers are people who:

Accepted Answer

A)   want to spend money on something of value right now, but don't have cash on hand.
B)   have cash on hand and are willing to let others use it, for a price.
C)   want to spend money on something of value in the future, but don't know how to save for it.
D)   have cash promised to them at some future date.E) A) and D)
F) B) and D)

Question 11

Good current economic conditions incentivize people to save _______, and a good outlook on future economic conditions incentivizes people to save _______.

Accepted Answer

A)   more; less
B)   more; more
C)   less; more
D)   less; lessE) C) and D)
F) B) and D)

Question 12

The portion of income that is spent on productive inputs, such as factories, machinery, and inventories, is called:

Accepted Answer

A)   investment.
B)   savings.
C)   consumption spending.
D)   loanable funds.E) None of the above
F) All of the above

Question 13

A bond is:

Accepted Answer

A)   a financial asset that represents partial ownership of a company.
B)   a payment made periodically to all shareholders of a company.
C)   an agreement in which a lender gives money to a borrower in exchange for a promise to repay the amount loaned plus an agreed-upon amount of interest.
D)   a promise by an issuer to pay a lump sum at a specified maturity date and, in some cases, to pay periodic interest at a specific percentage rate.E) None of the above
F) A) and B)

Question 14

The basic trade-off in valuing any asset is between:

Accepted Answer

A)   the amount of risk and the rate of return.
B)   the rate of return and the length of the loan.
C)   the amount of risk and the length of the loan.
D)   the rate of return and the amount of the loan.E) C) and D)
F) All of the above

Question 15

The process by which risks are shared among many different assets or people is called:

Accepted Answer

A)   credit risk.
B)   risk spread.
C)   diversification.
D)   the liquidity process.E) None of the above
F) C) and D)

Question 16

Banks act as an intermediary between savers and borrowers by determining the:

Accepted Answer

A)   price at which the quantity of funds saved will be equal to the quantity invested.
B)   quantity of funds that will be saved depending on the price.
C)   quantity of funds that will be borrowed for any given quantity of savings.
D)   price at which the quantity of funds saved will be more than enough for those who want to borrow.E) C) and D)
F) A) and D)

Question 17

If citizens expect to bear most of the burden for their own health care and retirement costs in the future, then we would expect the _______ loanable funds to be _______ than it would be if retirement benefits were expected.

Accepted Answer

A)   demand for; greater
B)   demand for; lesser
C)   supply of; greater
D)   supply; lesserE) All of the above
F) A) and D)

Question 18

Which of the following is the most liquid?

Accepted Answer

A)   A house
B)   A savings deposit
C)   A painting by Monet
D)   An antique firearm from WWIE) A) and C)
F) C) and D)

Question 19

Making a loan is generally _______ than buying stock, and it earns a _______ return.

Accepted Answer

A)   less risky; lower
B)   less risky; higher
C)   riskier; lower
D)   riskier; higherE) A) and D)
F) C) and D)

Question 20

Institutions that channel funds from people who have them to people who want them are called:

Accepted Answer

A)   financial intermediaries.
B)   corporations.
C)   central banks.
D)   government agencies.E) All of the above
F) A) and B)

Exam 14: Thebasics of Finance

Which of the following is the most liquid?

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Savings is considered the portion of income that is:

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When markets are less liquid, the supply of loanable funds is _______ and the economy grows _______.

Correct AnswerverifiedShow Answer

In financial markets, buyers are people who:

Correct AnswerverifiedShow Answer

The basic trade-off in valuing any asset is between:

Correct AnswerverifiedShow Answer

Good current economic conditions incentivize people to save _______, and a good outlook on future economic conditions incentivizes people to save _______.

Correct AnswerverifiedShow Answer

Making a loan is generally _______ than buying stock, and it earns a _______ return.

Correct AnswerverifiedShow Answer

If citizens expect to bear most of the burden for their own health care and retirement costs in the future, then we would expect the _______ loanable funds to be _______ than it would be if retirement benefits were expected.

Correct AnswerverifiedShow Answer

A bond is:

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Savings and investment are equal:

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Banks act as an intermediary between savers and borrowers by determining the:

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When a borrower fails to pay back a loan according to the agreed-upon terms, it is called:

Correct AnswerverifiedShow Answer

When the government borrows to finance excess spending, it causes the _______ loanable funds to _______.

Correct AnswerverifiedShow Answer

The portion of income that is spent on productive inputs, such as factories, machinery, and inventories, is called:

Correct AnswerverifiedShow Answer

Savers in the financial system make decisions about how to save their money by following the basic principles of:

Correct AnswerverifiedShow Answer

If the rate of return is lower than the cost of borrowing:

Correct AnswerverifiedShow Answer

Institutions that channel funds from people who have them to people who want them are called:

Correct AnswerverifiedShow Answer

An economy that interacts with other economies is a(n) :

Correct AnswerverifiedShow Answer

The reduction in private borrowing caused by an increase in government borrowing is called:

Correct AnswerverifiedShow Answer

The process by which risks are shared among many different assets or people is called:

Correct AnswerverifiedShow Answer

Correct Answer
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When markets are less liquid, the supply of loanable funds is _ and the economy grows _.

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Good current economic conditions incentivize people to save _, and a good outlook on future economic conditions incentivizes people to save _.

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Making a loan is generally _ than buying stock, and it earns a _ return.

Correct Answer
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If citizens expect to bear most of the burden for their own health care and retirement costs in the future, then we would expect the _ loanable funds to be _ than it would be if retirement benefits were expected.

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When the government borrows to finance excess spending, it causes the _ loanable funds to _.

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