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macroeconomics
Exploring Macroeconomics 5th Edition Robert L. Sexton - Solutions
The short-run relationship refers to a period when _____________ can change in response to supply and demand, but _____________ prices have not yet been able to adjust.
The two aggregate supply curves are a(n)_____________ aggregate supply curve and a(n)_____________ aggregate supply curve.
The _____________ curve is the relationship between the total quantity of final goods and services that suppliers are willing and able to produce and the overall price level.
If major trading partners are experiencing economic slowdowns, then they will demand _____________ imports from the United States, shifting AD to the _____________.
An increase in government purchases, other things being equal, shifts AD to the _____________.
A reduction in business taxes would shift AD to the _____________, while an increase in real interest rates or business taxes would shift AD to the ____________.
Because consuming less is saving more, an increase in savings, ceteris paribus, would shift AD to the _____________.
If consumers sensed that the economy was headed for a recession or the government imposed a tax increase, this would result in a(n) _____________ shift of the AD curve.
An increase in any component of GDP (C, I, G, or X M)can cause the AD curve to shift ____________.
The real wealth effect, the interest rate effect, and the open economy effect all contribute to the _____________ slope of the AD curve.
If the price level in the United States rises, U.S. exports will become _____________ expensive, imports will become _____________ expensive, and net exports will _____________.
If the prices of goods and services in the domestic market rise relative to those in global markets as a result of a higher domestic price level, consumers and businesses will buy _____________ from foreign producers and _____________ from domestic producers.
The interest rate effect process can be summarized as follows: A higher price level → _____________ the demand for loanable funds → _____________ the interest rate → _____________ investments →_____________ RGDP demanded.
At higher interest rates, the opportunity cost of borrowing _____________; and _____________ interest-sensitive investments will be profitable, which will result in a(n)_____________ quantity of RGDP demanded.
The real wealth effect can be summarized as follows:A higher price level → _____________ real wealth →_____________ purchasing power → _____________ RGDP demanded.
As the price level decreases, the real value of people’s cash balances _____________ so that their planned purchases of goods and services _____________.
Three complementary explanations exist for the negative slope of the aggregate demand curve: the _____________ effect, the _____________ effect, and the _____________ effect.
The AD curve slopes _____________, which means a(n)_____________ relationship between the price level and real gross domestic product (RGDP) demanded.
Exports minus imports equals _____________.
Models that include international trade effects are called _____________ models.
Government purchases tend to be a(n) _____________ volatile category of aggregate demand than investment.
_____________ is by far the largest component of AD.
Aggregate demand (AD) refers to the quantity of _____________ at different price levels.
Which of the following was not a factor in the financial crisis of 2008?a. poorly informed borrowersb. credit rating agenciesc. fraudd. misguided government policiese. All of the above were factors in the financial crisis of 2008
If the equilibrium interest rate increases and quantity of funds traded in the loanable fund market decreases, it could have been caused bya. investors becoming more optimistic about profit prospects.b. investors becoming more pessimistic about profit prospects.c. households deciding to save
Suppose investors become pessimistic about the economy, lowering their expected returns on investment projects.The results would includea. a leftward shift in the supply of loanable funds.b. a rightward shift in demand for loanable funds.c. a smaller quantity of funds changing hands in the loanable
An increase in expectations about the profitability of investment will tend toa. increase both the interest rate and the level of investment.b. decrease both the interest rate and the level of investment.c. increase the interest rate and decrease the level of investment.d. decrease the interest
An increase in the real interest ratea. shifts the supply of loanable funds curve to the right.b. shifts the supply of loanable funds curve to the left.c. shifts the loanable funds demand curve to the right.d. shifts the loanable funds demand curve to the left.e. does none of the above.
A budget deficita. adds to national savings.b. lowers the interest rate.c. increases private investment.d. does none of the above, other things equal.
At a higher than equilibrium real interest rate, the quantity of loanable funds supplied would be ________ than the quantity of loanable funds demanded—there would be a _________ of loanable funds at this real interest rate.a. greater; shortageb. greater; surplusc. less than; shortaged. less
An increase in the supply of loanable funds woulda. increase real interest rates.b. decrease real interest rates.c. increase the dollar amount of loanable funds exchanged.d. do both a and c.e. do both b and c.
An increase in the loanable funds demand curve woulda. increase real interest rates.b. decrease real interest rates.c. increase the dollar amount of loanable funds exchanged.d. decrease the dollar amount of loanable funds exchanged.e. do both a and c.
If at a given interest rate, the quantity of loanable funds supplied is less than the quantity of loanable funds demanded,a. there is a surplus of loanable funds and real interest rates will rise.b. there is a surplus of loanable funds and real interest rates will fall.c. there is a shortage of
A higher real interest rate willa. increase the supply of loanable funds.b. decrease the supply of loanable funds.c. increase the dollar amount of loanable funds exchanged, but not shift the supply of loanable funds curve to the right.d. decrease the dollar amount of loanable funds exchanged, but
A combination of higher business taxes and a reduction in the level of new profitable technological investment opportunitiesa. would increase the loanable funds demand curve.b. would decrease the loanable funds demand curve.c. would leave the loanable funds demand curve unchanged.d. could either
The discovery of profitable new technological investment opportunitiesa. would increase the loanable funds demand curve.b. would decrease the loanable funds demand curve.c. would leave the loanable funds demand curve unchanged.d. could either increase or decrease the loanable funds demand curve.
A lower real interest rate willa. increase the loanable funds demand curve.b. decrease the loanable funds demand curve.c. increase the dollar amount of loanable funds exchanged but not change the loanable funds demand curve.d. decrease the dollar amount of loanable funds exchanged but not change
Capital outflows to foreign countries tend toa. make domestic real interest rates higher than they would otherwise have been.b. reduce the funds available for domestic capital investment.c. cause the saving supply curve to be to the left of the national saving supply curve.d. do all of the above.
Other things equal, if the government runs a budget surplus, it will tend toa. increase national saving.b. decrease the real interest rate.c. increase the amount of investment.d. increase economic growth.e. do all of the above.
When the government runs a budget deficit, which of the following would have to be negative?a. public savingb. private savingc. national savingd. investment
Based on the information in the preceding table, which of the following is true?a. Both General Electric and Hewlett-Packard stocks increased in price compared to the previous day’s close.b. Both General Electric and Hewlett-Packard stocks decreased in price compared to the previous day’s
If a typical P/E ratio for companies that supply services and products comparable to Hewlett-Packard is 40, thena. purchasing Hewlett-Packard stock at this time cannot possibly be a wise decision.b. Hewlett-Packard’s P/E ratio suggests that its stock may be overvalued at this time.c.
If a typical P/E ratio for companies that supply services and products comparable to General Electric is 20, thena. purchasing General Electric stock at this time cannot possibly be a wise decision.b. GE’s P/E ratio suggests that its stock may be overvalued at this time.c. GE’s P/E ratio
A stock’s P/E ratioa. is calculated by dividing the 52-week high price by the earnings per share of the firm over the past year.b. is calculated by dividing the 52-week low price by the earnings per share over the past year.c. indicates that the stock is overvalued if the P/E ratio is relatively
A relatively high P/E ratioa. may indicate that investors expect future earnings to rise.b. may indicate that investors expect future earnings to fall.c. indicates that a stock is undervalued.d. indicates that the stock is trading at a price that is low relative to earnings.
The random walk theory suggestsa. that stock prices fluctuate in highly predictable ways.b. that it is extremely difficult without inside information to consistently pick winners in the stock market.c. that if stock price fluctuations are scrutinized carefully, one can consistently pick winners in
Stock prices are influenced bya. concern over inflation.b. the economic policies of the government.c. business conditions in foreign economies.d. expectations about corporate earnings.e. all of the above.
Corporations can finance their growtha. by issuing bonds.b. by issuing new shares of stock.c. through plowbacks.d. by all of the above.e. by either a or b.
Ownership of a share of stock in a corporation is different from ownership of a corporate bond in thata. the owner of a share of stock receives payment before a bondholder in the event of a corporation’s liquidation.b. a bondholder receives a fixed interest payment plus a lump sum payment at
Preferred stockholdersa. assume greater risks than do common stockholders.b. receive payment before common stockholders in the event of liquidation.c. receive payment before bondholders in the event of liquidation.d. are characterized by all of the above.
Owners of stock in U.S. corporations includea. pension funds.b. insurance companies.c. mutual funds.d. all of the above.
Which of the following entities do not hold corporate stocks?a. university and non-profit foundation endowment fundsb. insurance companiesc. other corporationsd. pension fundse. All of the above entities hold corporate stocks.
You could invest your savings ina. treasury billsb. mutual funds.c. bank deposits.d. stocks and bonds.e. any of the above.
A firm can acquire financial resources througha. retained earnings.b. selling stocks.c. issuing bonds.d. all of the above.
The federal government had to take over both Fannie Mae and Freddy Mac as a result of the financial crisis. true or False
The fact that Fannie Mae and Freddy Mac were buying large amounts of risky mortgages meant that other buyers perceived the risks of such investments as lower than they really were. true or False
When house prices began falling and many went into default and foreclosure, the housing industry continued to produce new housing at a rapid rate. true or False
After the Fed began pushing short-term interest rates up in 2005, the higher interest rates and falling housing prices pushed many homeowners into default and foreclosure. true or False
There was no one in the world who knew exactly where all the mortgage-backed securities were being held when they began to experience trouble. true or False
The traditional safety of home loans in the United States helped make investors eager to buy mortgage-backed securities. true or False
The rapid increase in housing prices during the housing bubble made both borrowers and lenders expect that the risks of subprime lending was minimal. true or False
Excessive lending to subprime borrowers did not appreciably affect other homeowners. true or False
In 2006, a substantial minority of subprime loans were hybrid loans. true or False
Allowing mortgage borrowers to borrow with little or no money down increased the number of high-risk borrowers.
Fannie Mae and Freddy Mac encouraged the lowering of standards for low-income families in an effort to increase homeownership. true or False
Maintaining very low real interest rates for a substantial period of time contributed to the housing price run-up. true or False
Worldwide interest rates were low early in the twenty-first century in part because of a large amount of savings in emerging markets. true or False
The housing market decline after 2006 was roughly similar throughout the United States. true or False
There were only one or two major contributing factors to the financial crisis of 2008. true or False
If the loanable funds supply curve shifted right, it would cause a temporary surplus of loanable funds, which would result in a lower real interest rate. true or False
If the loanable funds supply curve shifted left, we would expect higher real interest rates and an increased quantity of loanable funds demanded to result. true or False
If the loanable funds demand curve shifted right, we would expect higher real interest rates and an increased quantity of loanable funds demanded to result. true or False
Higher real interest rates will increase the quantity of loanable funds supplied, but not change the loanable funds supply curve. true or False
Lower real interest rates will shift the loanable funds demand curve right. true or False
An increase in disposable income would shift the supply of loanable funds curve to the right. true or False
When the domestic real interest rate is high, capital will tend to flow out to foreign countries. true or False
When foreigners supply fewer funds than they demand, a capital outflow from the United States occurs. true or False
A move toward a government budget surplus would tend to decrease the real interest rate, other things equal. true or False
A move toward a government budget deficit would tend to reduce private investment and reduce economic growth, other things equal. true or False
A move toward a government budget surplus would increase national saving, reduce real interest rates, and increase investment, other things equal. true or False
If the government goes from a balanced budget to a deficit, public saving would become negative and national saving would decrease, other things equal. true or False
If the government spends more money than it collects in taxes, national saving is negative. true or False
At a real interest rate above equilibrium, a surplus of loanable funds would occur. true or False
If the real interest rate is below equilibrium, the quantity of loanable funds demanded would be less than the quantity of loanable funds supplied. true or False
Increases in current disposable income from a tax deduction will increase the loanable funds supply curve. true or False
The supply of national savings is the sum of all private savings. true or False
An increase in business taxes would shift the loanable funds demand curve to the left. true or False
If businesses expect higher rates of return on their investments, it would shift the loanable funds demand curve to the right. true or False
The demand for loanable funds varies inversely with the real interest rate, other things equal. true or False
A firm’s price-earnings ratio is its stock price divided by its annual dividend. true or False
Historically, the U.S. stock market has outperformed other financial assets. true or False
If you and a large group of others have all received a “hot” stock tip, it is unlikely to be a source of unusually high profits. true or False
For a firm to raise additional capital through selling new shares of stock is more common when stock prices are high than when they are low. true or False
The values of securities change with the expectations of benefits and costs. true or False
Firms are more likely to issue new shares of stock and increase expenditures on new capital equipment in periods of optimism. true or False
Corporations can acquire additional financial resources by issuing new shares of stock or reinvesting profits. true or False
Preferred stockholders have a higher priority than bondholders and common stockholders when debts of the firm are settled. true or False
Both bondholders and stockholders receive increased payments as a company prospers. true or False
Owners of preferred stock are the residual claimants of the resources of a corporation. true or False
In terms of economic growth, increases in the capital stock come at the expense of workers. true or False
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