PE Chapter26

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.

• A

• B

• C

• D

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.

• A

• B

• C

• D

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.

• A

• B

• C

• D

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.

• A

• B

• C

• D

Which of the following statements about the term of a bond is correct?

• Term refers to the various characteristics of a bond, including its interest rate and tax treatment.

• The term of a bond is determined entirely by its credit risk.

• 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.

• Interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

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

• the credit risk associated with Bond A is lower than the credit risk associated with Bond B.

• Bond A was issued by the Apple corporation and Bond B was issued by the city of Houston.

• Bond A has a term of 20 years and Bond B has a term of 2 years.

• All of the above are correct.

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.

• A

• B

• C

• D

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.

• A

• B

• C

• D

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.

• A

• B

• C

• D

Long-term bonds are

• riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.

• riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

• less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.

• less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.