Question

If a government went from a deficit to a surplus, government debt would decrease, the supply of loanable funds would shift to the right and interest rates would fall.

Select one:

True

False

People who buy stock in a corporation such as Honda become part owners of Honda, so the benefits of holding the stock depend on Honda's profits.

Select one:

True

False

When large corporations, the federal government, or state and local governments need to borrow to finance their purchases, they usually borrow directly from the public by buying bonds

Select one:

True

False

Suppose that a corporation has $10 million in cash that it was planning to use to build a new factory. Recently, the real interest rate has decreased. The decrease in the rate of interest should make it less likely that the corporation will build the factory because a lower interest rate will make the factory less valuable.

Select one:

True

False

If the government wants to stimulate the growth of investment spending, it should lower taxes on interest income, eliminate investment tax credits, and lower the budget surplus.

Select one:

True

False

Answer 1

(1) Definitely, if a government has surplus money then they would be ready to give more loan to his citizen at a low price and because of the increase in government surplus now their motive to gain interest from these loans would also be very low, thus they would be happy to provide loan at low price

Answer - True

(2) so if we are buying the stock of a firm that simply means we are investing in that particular firm for their production of goods and services, thus if the company will grow they will get more revenue and they may have high profit and as an owner of the share it will also be shared to us in the form of dividends

Answer - True

(3) so in case if government needs money for their purchase, then they have to sell investment bonds in the market rather then buying back from public as we have to generate more money and it can only be done by selling the bonds rather then taking it back from public, generally government take their bonds back when they have to reduce the amount of money in the market thus in this case government will try to sell their bonds to increase more funds for their purchase

Answer - False

(4) as the real interest rate has decreased that means if we will keep the money in the bank then, in that case, we will get fewer benefits as compared to some base year on which we have calculated the real interest rate above, thus we will look on if we will construct this factory how much return we can get and whether it will be higher then the total interest amount that we are getting from the bank, thus if we will assume that the return from building a factory is higher then keeping money at bank then constructing the factory is the best option for the firm

Answer - False

(5) if a government wants to stimulate the investment they should have to provide more investment tax credits rather then eliminating it because it is the way through which people get motivated to investment because in this incentive program government reduce some percentage of their tax as the more they invest less amount of tax has to be given to the government thus the answer would be false

Answer - False