Lec 5: Saving, investment, and the financial system

Which of the following is an example of equity finance?

• corporate bonds

• municipal bonds

• stock

• bank loan

•  All of the above are equity finance.

Credit risk refers to a bond’s

• Term to maturity.

• Probability of default.

•  Tax treatment.

• Dividend.

• Price-earnings ratio.

A financial intermediary is a middleperson between

• Labor unions and firms.

• Husbands and wives.

• Buyers and sellers.

• Borrowers and lenders.

National saving (or just saving) is equal to

• Private saving + public saving.

• Investment + consumption expenditures.

• GDP – government purchases.

• GDP + consumption expenditures + government purchases.

• None of the above.

  
  

Which of the following statements is true?

• A stock index is a directory used to locate information about selected stocks.

  
  

• Longer-term bonds tend to pay less interest than shorter-term bonds.

• Municipal bonds pay less interest than comparable corporate bonds.

  
  

• Mutual funds are riskier than single stock purchases because the performance

  of so many different firms can affect the return of a mutual fund.

  
  

 If government spending exceeds tax collections,

• There is a budget surplus.

• There is a budget deficit.

• Private saving is positive.

• Public saving is positive.

 If GDP = $1,000, consumption = $600, taxes = $100, and government purchases = $200, how much is saving and investment?

• saving = $200, investment = $200

• saving = $300, investment = $300

• saving = $100, investment = $200

• saving = $200, investment = $100

• saving = $0, investment = $0

If the public consumes $100 billion less and the government purchases $100

billion more (other things unchanging), which of the following statement is true?

• There is an increase in saving, and the economy should grow more quickly.

•  There is a decrease in saving, and the economy should grow more slowly.

• Saving is unchanged.

• There is not enough information to determine what will happen to saving.

Which of the following financial market securities would likely pay the highest

interest rate?

• a municipal bond issued by the state of Texas

•  a mutual fund with a portfolio of blue chip bonds

• a bond issued by a blue chip company

• a bond issued by a start-up company

Investment is

• The purchase of stock and bonds.

• The purchases of capital equipment and structures.

• when we place our saving in the bank

• The purchase of goods and services.