ECO 205 - Quiz 04

1. What is a bond?

• • A. A certificate of ownership in a company

• • B. A loan from an investor to a borrower

• • C. A share of company profits

• • D. A bank account

2. Which of the following is a financial intermediary?

• • A. Stock market

• • B. Bond market

• • C. Government

• • D. Bank

3. How do bonds differ from stocks?

• • A. Bonds offer partial ownership in a company, while stocks do not

• • B. Stocks provide fixed returns, while bonds offer variable returns

• • C. Bonds represent debt, while stocks represent equity

• • D. Stocks are risk-free, while bonds are not

4. Why might a country with a high saving rate experience faster economic growth?

• • A. It ensures higher investment in physical capital

• • B. It reduces consumption

• • C. It eliminates budget deficits

• • D. It guarantees higher tax revenue

5. What does the term "investment" mean in macroeconomics?

• • A. Buying stocks or bonds

• • B. Spending on capital goods like factories or machinery

• • C. Accumulating financial wealth

• • D. Increasing public debt

6. If interest rates rise, how are borrowing and saving likely to change?

• • A. Both borrowing and saving increase

• • B. Both borrowing and saving decrease

• • C. Borrowing increases; saving decreases

• • D. Borrowing decreases; saving increases

7. How does a government budget deficit affect the market for loanable funds?

• • A. It increases the supply of loanable funds, reducing interest rates

• • B. It decreases the supply of loanable funds, raising interest rates

• • C. It increases the demand for loanable funds, raising interest rates

• • D. It decreases the demand for loanable funds, reducing interest rates

8. If a country’s GDP is $1 trillion, consumption is $600 billion, and government spending is $200 billion, what is the national saving in a closed economy?

• • A. $200 billion

• • B. $400 billion

• • C. $1 trillion

• • D. $300 billion

9. If the real interest rate is below the equilibrium rate, what happens in the market for loanable funds?

• • A. There is a surplus of loanable funds

• • B. There is a shortage of loanable funds

• • C. Investment is discouraged

• • D. Saving exceeds investment

10. Should governments actively intervene in financial markets to stimulate investment? Why or why not?

• • A. Yes, to address market failures and encourage optimal investment

• • B. No, because intervention always leads to inefficiencies

• • C. Yes, as it ensures higher national saving

• • D. No, as financial markets naturally achieve efficient outcomes