Crowding out occurs when investment declines because

Question

Question Points

1. As chief financial officer you sell newly issued bonds on behalf of your firm. Your firm is:

a. borrowing indirectly.

b. borrowing directly.

c. lending directly.

d. lending indirectly.

2. In which of the following instances is the present value of the future payment the largest?

a. You will receive $1,000 in 5 years and the annual interest rate is 5 percent.

b. You will receive $1,000 in 10 years and the annual interest rate is 3 percent.

c. You will receive $2,000 in 10 years and the annual interest rate is 10 percent.

d. You will receive $2,400 in 15 years and the annual interest rate is 8 percent.

3. Advocates of unions contend that unions are a necessary antidote to the market power of the firms that hire workers and that they are important for helping firms respond efficiently to workers' concerns.

a. True

b. False

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4. Structural unemployment results when the number of jobs is insufficient for the number of workers.

a. True

b. False

5. Which of the following is an example of financial intermediation?

a. Susan buys shares of stock issued by a fast food company.

b. A foreign government buys bonds issued by the U.S. Treasury.

c. John makes a deposit at a bank and the bank uses this money to make an auto loan to Luke.

d. None of the choices apply.

6. Fortunade Corporation stock has a price of $100 per share, a dividend of $1.60 per share, and retained earnings of $2.00 per share. The dividend yield on this stock is:

a. 2.8 percent.

b. 2.0 percent.

c. 1.6 percent.

d. 0.4 percent.

7. More generous unemployment insurance would:

a. raise structural unemployment.

b. raise frictional unemployment.

c. lower structural unemployment.

d. lower frictional unemployment.

8. Which of the following is the correct expression for finding the present value of a $500 payment two years from today if the interest rate is 4 percent?

a. $500/(1.04)2

b. $500 - 500(1.04)2

c. $500 - $500/(.04)2

d. None of the choices apply.

9. 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. The process by which unions and firms agree on the terms of employment is called collective bargaining.

a. True

b. False

11. You put $275 in the bank one year ago and forgot about it. The bank sends you a notice that you now have $291.50 in your account. What interest rate did you earn?

a. 5 percent

b. 6 percent

c. 7 percent

d. 8 percent

12. Sectoral shifts temporarily cause unemployment.

a. True

b. False

13. Someone who is without work but is not looking for work is included in the Bureau of Labor Statistics' "unemployed" category.

a. True

b. False

14. Most economists agree that eliminating unemployment insurance would increase the nation's overall level of well-being.

a. True

b. False

15. Some degree of unemployment is inevitable in a complex economy.

a. True

b. False

16. A worker searching for jobs that best suits him or her is most closely associated with:

a. cyclical unemployment.

b. frictional unemployment.

c. seasonal unemployment.

d. structural unemployment.

17. The possibility of speculative bubbles in the stock market arises in part because:

a. stock prices may not depend at all on psychological factors.

b. fundamental analysis may be the correct way to evaluate the value of stocks.

c. future streams of dividend payments are very hard to estimate.

d. the value of shares of stock depends not only on the future stream of dividend payments but also on the price at which the stock will be sold.

18. In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

a. Private saving is equal to government expenditures.

b. Public saving is equal to investment.

c. After paying their taxes and paying for their consumption, households have nothing left.

d. The government's tax revenue is equal to its expenditures.

19. Public saving is T – G, while private saving is Y – T – C.

a. True

b. False

20. Crowding out occurs when investment declines because:

a. a budget deficit makes interest rates rise.

b. a budget deficit makes interest rates fall.

c. a budget surplus makes interest rates rise.

d. a budget surplus makes interest rates fall.