Question 1

The indirect provision of funds by savers to borrowers is accomplished by
A)banks and other financial markets.
B)banks and other financial intermediaries.
C)stock markets and other financial markets.
D)All of the above are correct.

Accepted Answer

Banks and other financial intermediaries, such as credit unions and insurance companies, play a critical role in the indirect provision of funds. They take in deposits from savers and lend out these funds to borrowers, earning a profit on the difference in interest rates. While financial markets, including stock markets, also facilitate the flow of funds between savers and borrowers, they do so through securities transactions rather than direct lending.

Question 2

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.

Accepted Answer

Norberto is spending more than he earns, indicating he needs additional funds, making him a borrower and a demander of funds.

Question 3

​Bob's new startup goes public and sells shares of future profits. Bob's startup 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.

Accepted Answer

Bob's startup is issuing shares of future profits which means it is demanding funds from investors. As a result, it falls under the category of a borrower or as a demander of funds.

Question 4

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.

Accepted Answer

The answer of If you were to start a business...

Question 5

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.

Accepted Answer

The financial system includes institutions such as banks, credit unions, stock markets, and other intermediaries that connect savers and investors. These institutions help to match one person's saving with another person's investment, making the financial system crucial for the efficient allocation of resources in the economy. The Federal Reserve system and monetary system are specific components of the financial system, but not comprehensive enough to be the correct answer.

Question 6

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.

Accepted Answer

The financial system plays a crucial role in matching the savings of individuals and institutions with the investment needs of other individuals and institutions. This is accomplished through the intermediation of financial institutions, such as banks and investment firms, which match savers and investors based on their respective needs and preferences. This process is essential for the efficient allocation of capital in an economy and facilitates the growth of businesses and the creation of jobs.

Question 7

The dividend yield is
A)​a financial intermediary.
B)​reported as a percentage of the stock's price.
C)​the same as retained earnings.
D)​a function of the company's earnings per share and the stock's price.

Accepted Answer

The dividend yield is reported as a percentage of the stock's price, which is calculated by dividing the annual dividend per share by the current market price of the stock. It is not a financial intermediary, the same as retained earnings, or solely a function of the company's earnings per share.

Question 8

​Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by
A)​borrowing money from a friend.
B)selling shares of future profits.
C)​using his own savings.
D)​All of the above.

Accepted Answer

Rob can finance his capital investment by borrowing money, selling shares of future profits, or using his own savings, making all options viable.

Question 9

If a firm's price-earnings ratio is relatively low, then it might be an indication that
A)the demand for the stock is relatively high.
B)the supply of the stock is relatively low.
C)people expect the firm's earnings to rise.
D)people expect the firm's earnings to fall.

Accepted Answer

A low price-earnings ratio often suggests that investors expect the firm's future earnings to decline, leading to a lower valuation of the stock.

Question 10

​The price-earnings ratio for Wavina Coporation increased from 15 to 17. This suggests that
A)​the stock might be overvalued.
B)​people expect earnings to decline in the future.
C)​the stock is cheap.
D)people expect share prices to fall.

Accepted Answer

A higher price-earnings ratio indicates that investors are willing to pay more for each dollar of earnings, which can suggest that the stock is overvalued. A increase in the price-earnings ratio suggests that the stock may be becoming more overvalued.

Question 11

Rank the following in order of highest to lowest interest rate:
A)​1 year AAA municipal bond, 1 year AA municipal bond, 1 year corporate bond, 5 year corporate bond
B)​5 year corporate bond, 1 year corporate bond, 1 year AAA municipal bond, 1 year AA municipal bond
C)5 year corporate bond, 1 year corporate bond, 1 year AA municipal bond, 1 year AAA municipal bond
D)​1 year AA municipal bond, 1 year AAA municipal bond, 1 year corporate bond, 5 year corporate bond

Accepted Answer

Interest rates are generally higher for longer-term bonds and lower-rated bonds. Therefore, a 5-year corporate bond typically has the highest interest rate, followed by a 1-year corporate bond, a 1-year AA municipal bond, and finally a 1-year AAA municipal bond.

Question 12

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.

Accepted Answer

When a country saves a larger portion of its GDP, it has more funds available for investment. This leads to an increase in capital, which in turn results in higher productivity as more capital can lead to more efficient production processes. Thus, option A is the correct choice.

Question 13

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.

Accepted Answer

When entrepreneurs acquire funds from others to start their businesses, it means their investments are being financed by someone else's savings.

Question 14

​A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?
A)​Demand for the company's stock decreases, while the price of a share falls.
B)​Demand for the company's stock decreases, while the price of a share rises.
C)​Supply of the company's stock decreases, while the price of a share falls.
D)​supply of the company's stock decreases, while the price of a share falls.

Accepted Answer

When a company loses a high-profile patent-infringement case, it can negatively impact investor confidence, leading to decreased demand for its stock and a subsequent fall in the stock price.

Question 15

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.

Accepted Answer

These expenditures are investments in physical capital, which is necessary for the production of goods and services in the business. This type of spending is referred to as capital investment.

Question 16

​The financial system does NOT influence
A)long-run economic growth.
B)saving and investment.
C)the amount of capital in the economy.
D)​the amount of natural resources in the economy.

Accepted Answer

The financial system does not have a direct influence on the amount of natural resources in the economy. It can, however, influence the use and management of natural resources through its impact on investment and production decisions.

Question 17

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.

Accepted Answer

Monika's income exceeding her expenditures means that she has excess funds available. As such, she can save these funds or use them to supply to others who may require funds. Thus, she is either a saver or a supplier of funds.

Quiz 26: Saving, Investment, and the Financial System

The indirect provision of funds by savers to borrowers is accomplished by

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

​Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.

Institutions that help to match one person's saving with another person's investment are collectively called the

The primary economic function of the financial system is to

The dividend yield is

​Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by

If a firm's price-earnings ratio is relatively low, then it might be an indication that

​The price-earnings ratio for Wavina Coporation increased from 15 to 17. This suggests that

Rank the following in order of highest to lowest interest rate:

When a country saves a larger portion of its GDP than it did before, it will have

Most entrepreneurs do not have enough money of their own to start their businesses. When they acquire the necessary funds from someone else,

​A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

​The financial system does NOT influence

Given that Monika's income exceeds her expenditures, Monika is best described as a

Bob's new startup goes public and sells shares of future profits. Bob's startup is best described as a

Rob wants to create a personal trainer program service and needs to pay for equipment and gym space. He can finance this capital investment by

The price-earnings ratio for Wavina Coporation increased from 15 to 17. This suggests that

A tech company loses a high-profile patent-infringement case against its top competitor. Which of the following is true?

The financial system does NOT influence