Problem Set 16

Banks and Mutual Funds are examples of financial markets.

• true

• false

When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by issuing stocks or bonds.

• true

• false

A Google Inc. bond that matures in 3 years will pay a higher interest rate than a Google Inc. bond that matures in 5 years. Assume that everything else is equal.

• true

• false

Because they are so risky, bonds with high default risk will pay a low interest rate.

• true

• false

Suppose Lending Club, a financial firm, issues bonds to raise money for a new project. This is an example of _______ finance. In the event that Lending Club goes bankrupt, its _______ will be paid first.

• debt; bondholders

• debt; shareholders

• equity; bondholders

• equity; shareholders

Institutions that pools funds from individual investors and use the funds to buy a portfolio of diverse stocks and/or bonds are known as

• credit unions

• savings and loans

• mutual funds

• banks

Public saving is (Y - G), while private saving is (Y - C - G).

• true

• false

The amount for government purchases (G) is $ ____ .

• 2100

• 100

• 4100

• 2200

The amount for national savings (S) is $ ____ .

• 2100

• 100

• 4100

• 2000

The amount for private savings is $ ____ .

• 2200

• 100

• 4100

• 2000