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Saving, Investment, and the Financial System
Multiple Choice – Section 00: Introduction
1. When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures
a. capital investment.
b. investment in human capital.
c. business consumption expenditures.
d. personal saving.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment Investment
KEYWORDS: BLOOM'S: Knowledge
2. 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.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment Investment
KEYWORDS: BLOOM'S: Comprehension
3. When a country saves a larger portion of its GDP than it did before, it will have
a. more capital and higher productivity.
b. more capital and lower productivity.
c. less capital and higher productivity.
d. less capital and lower productivity.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment Saving
KEYWORDS: BLOOM'S: Comprehension
4. Institutions that help to match one person's saving with another person's investment are collectively called the
a. Federal Reserve system.
b. banking system.
c. monetary system.
d. financial system.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment
KEYWORDS: BLOOM'S: Knowledge
5. The primary economic function of the financial system is to
a. keep interest rates low.
b. provide expert advice to savers and investors.
c. match one person’s consumption expenditures with another person’s capital expenditures.
d. match one person’s saving with another person’s investment.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment
KEYWORDS: BLOOM'S: Comprehension
6. Given that Monika's income exceeds her expenditures, Monika is best described as a
a. saver or as a supplier of funds.
b. saver or as a demander of funds.
c. borrower or as a supplier of funds.
d. borrower or as a demander of funds.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment Saving
KEYWORDS: BLOOM'S: Comprehension
7. Norberto is opening a bicycle shop, and his monthly expenditures to get the shop up and running exceed his monthly income. Norberto is best described as a
a. saver or as a supplier of funds.
b. saver or as a demander of funds.
c. borrower or as a supplier of funds.
d. borrower or as a demander of funds.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment Investment
KEYWORDS: BLOOM'S: Comprehension
8. Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,
a. their consumption expenditures are being financed by someone else’s saving.
b. their consumption expenditures are being financed by someone else’s investment.
c. their investments are being financed by someone else’s saving.
d. their saving is being financed by someone else’s investment.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.125 - LO: 26-0
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment Investment
KEYWORDS: BLOOM'S: Comprehension
Multiple Choice – Section 01: Financial Institutions in the U.S. Economy
1. At the broadest level, the financial system moves the economy’s scarce resources from
a. the rich to the poor.
b. financial institutions to business firms and government.
c. households to financial institutions.
d. savers to borrowers.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Consumption, Saving, and Investment
KEYWORDS: BLOOM'S: Comprehension
2. The fact that borrowers sometimes default on their loans by declaring bankruptcy is directly related to the characteristic of a bond called
a. credit risk.
b. interest risk.
c. term risk.
d. private risk.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Knowledge
3. When a large, well-known corporation wishes to borrow directly from the public, it can
a. sell bonds.
b. sell shares of stock.
c. go to a bank for a loan.
d. All of the above are correct.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Comprehension
4. Which of the following statements about the term of a bond is correct?
a. Term refers to the various characteristics of a bond, including its interest rate and tax treatment.
b. The term of a bond is determined entirely by its credit risk.
c. The term of a bond is determined entirely by how much sales charge the buyer of the bond pays when he or she purchases the bond.
d. Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Comprehension
5. We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
a. the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
b. Bond A was issued by the city of Philadelphia and Bond B was issued by Red Hat Corporation.
c. Bond A has a term of 20 years and Bond B has a term of 2 years.
d. All of the above are correct.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Application
6. We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
a. Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
b. Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
c. Bond A has a term of 20 years and Bond B has a term of 1 year.
d. All of the above are correct.
ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Application
7. We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that
a. the credit risk associated with Bond A is lower than the credit risk associated with Bond B.
b. Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston.
c. Bond A has a term of 20 years and Bond B has a term of 2 years.
d. All of the above are correct.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Application
NOTES: n
8. We would expect the interest rate on Bond A to be lower than the interest rate on Bond B if the two bonds have identical characteristics except that
a. Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation.
b. Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
c. Bond A has a term of 1 year and Bond B has a term of 5 years.
d. All of the above are correct.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Application
NOTES: n
9. Atlas Corporation is in sound financial condition. It sells a long-term bond. Which of the following make the interest rate on this bond lower than otherwise?
a. Both Altas’ sound finances and the long term of the bond.
b. Atlas’ sound finances but not the long term of the bond.
c. The long term of the bond but not Atlas’ sound finances.
d. Neither Atlas’ sound finances nor the long term of the bond.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Application
10. As an alternative to selling shares of stock as a means of raising funds, a large company could, instead,
a. invest in physical capital.
b. use equity finance.
c. sell bonds.
d. purchase bonds.
ANSWER: c
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Comprehension
11. 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.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Stocks
KEYWORDS: BLOOM'S: Comprehension
12. Which of the following statements is correct?
a. A corporation receives a monetary payment every time its shares of stock are traded by stockholders on organized stock exchanges.
b. When a corporation sells bonds as a means of raising funds it is engaging in debt finance.
c. A share of stock is an IOU.
d. The two most important financial markets in the economy are the stock market and financial intermediaries.
ANSWER: b
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Comprehension
13. The economy’s two most important financial markets are
a. the investment market and the saving market.
b. the bond market and the stock market.
c. banks and the stock market.
d. financial markets and financial institutions.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics
KEYWORDS: BLOOM'S: Comprehension
14. Two of the economy’s most important financial intermediaries are
a. suppliers of funds and demanders of funds.
b. banks and the bond market.
c. the stock market and the bond market.
d. banks and mutual funds.
ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics
KEYWORDS: BLOOM'S: Comprehension
15. We associate the term debt finance with
a. the bond market, and we associate the term equity finance with the stock market.
b. the stock market, and we associate the term equity finance with the bond market.
c. financial intermediaries, and we associate the term equity finance with financial markets.
d. financial markets, and we associate the term equity finance with financial intermediaries.
ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Comprehension
16. A bond is a
a. financial intermediary.
b. certificate of indebtedness.
c. certificate of partial ownership in an enterprise.
d. None of the above is correct.
ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Knowledge
17. Which of the following is a financial-market transaction?
a. A saver buys shares in a mutual fund.
b. A saver deposits money into a credit union.
c. A saver buys a bond a corporation has just issued so it can purchase capital.
d. None of the above is correct.
ANSWER: c
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic
TOPICS: DISC: Financial Economics Bonds
KEYWORDS: BLOOM'S: Comprehension
18. A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
a. bond.
b. stock.
c. mutual fund.
d. All of the above are correct.
ANSWER: a
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: ECON.MANK.15.126 - LO: 26-1
NATIONAL STANDARDS: United States - BUSPROG: Analytic