__ 39. Suppose the U.S. Treasury announces plans to issue $50
billion of new bonds. Assuming the announcement was not expected,
what effect, other things held constant, would that have on bond
prices and interest rates?
a. Prices and interest rates would both rise.
b. Prices would rise and interest rates would decline.
c. Prices and interest rates would both decline.
d. There would be no changes in either prices or interest
rates.
e. Prices would decline and interest rates would rise.
____ 40. Which of the following would be most likely to lead
to higher interest rates on all debt securities in the
economy?
a. Households start saving a larger percentage of their
income.
b. The economy moves from a boom to a recession.
c. The level of inflation begins to decline.
d. Corporations step up their expansion plans and thus
increase their demand for capital.
e. The Federal Reserve uses monetary policy in an attempt to
stimulate the economy.
____ 41. Which of the following factors would be most likely
to lead to an increase in interest rates in the economy?
a. Households reduce their consumption and increase their
savings.
b. The Federal Reserve decides to try to stimulate the
economy.
c. There is a decrease in expected inflation.
d. The economy falls into a recession.
e. Most businesses decide to modernize and expand their
manufacturing capacity, and to install new equipment to reduce
labor costs.
____ 32. Which of the following statements is CORRECT?
a. Corporations are at a disadvantage relative to partnerships
because they have to file more reports to state and federal
agencies, including the Securities and Exchange Administration,
even if they are not publicly owned.
b. In a regular partnership, liability for the firm's debts is
limited to the amount a particular partner has invested in the
business.
c. A fast-growth company would be more likely to set up as a
partnership for its business organization than would a slow-growth
company.
d. Partnerships have difficulty attracting capital in part
because of their unlimited liability, the lack of impermanence of
the organization, and difficulty in transferring ownership.
e. A major disadvantage of a partnership relative to a
corporation as a form of business organization is the high cost and
practical difficulty of its formation.
____ 33. Which of the following statements is CORRECT?
a. Most businesses (by number and total dollar sales) are
organized as proprietorships or partnerships because it is easier
to set up and operate in one of these forms rather than as a
corporation. However, if the business gets very large, it becomes
advantageous to convert to a corporation, primarily because
corporations have important tax advantages over proprietorships and
partnerships.
b. Due to limited liability, unlimited lives, and ease of
ownership transfer, the vast majority of U.S. businesses (in terms
of number of businesses) are organized as corporations.
c. Due to legal considerations related to ownership transfers
and limited liability, most business (measured by dollar sales) is
conducted by corporations in spite of large corporations' often
less favorable tax treatment.
d. Large corporations are taxed more favorably than sole
proprietorships.
e. Corporate stockholders are exposed to unlimited
liability.