Question

Banks and credit unions are considered financial intermediaries because they act as financial institutions through which savers can indirectly provide funds to borrowers.

Select one:

True

False

The implementation of an investment tax credit would cause the demand for loanable funds to shift to the left and interest rates and the quantity of saving would fall.

Select one:

True

False

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

Select one:

True

False

A bond is a certificate of indebtedness and buyers of bonds receive interest income.

Select one:

True

False

The sale of bonds by a corporation to raise money is called equity finance and the sale of stocks by a corporation to raise funds is called debt finance

Select one:

True

False

Answer 1

1) Banks and credit unions are considered financial intermediaries because they act as financial institutions through which savers can indirectly provide funds to borrowers

Solution: True

Explanation: Banks and credit unions play the role of financial intermediaries as they stand among the savers and borrowers

2) The implementation of an investment tax credit would cause the demand for loanable funds to shift to the left and interest rates and the quantity of saving would fall

Solution: False

Explanation: The implementation of an investment tax credit will encourage businesses to expand the new factories and machines. As a result the demand for borrowing to finance the new capital expenditure would lead the demand curve in the loanable funds market for shifting towards the right

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

Solution: True

Explanation: When the government went from a budget deficit to a surplus the rate of interest would decline and the supply of loanable funds would shift right

4) A bond is a certificate of indebtedness and buyers of bonds receive interest income

Solution: True

Explanation: A bond refers to a certificate of indebtedness that specifies the borrower obligations to the bond holder, while stock indicates the ownership in a firm

5) The sale of bonds by a corporation to raise money is called equity finance and the sale of stocks by a corporation to raise funds is called debt finance

Solution: True

Explanation: The bond sale by a corporation is termed as the equity finance