ECN 211 Exam 3 – Marburger 2026
Questions and Answers
Financial Markets - Correct answer-People save money that they don't intend to
spend anytime soon
Businesses need money to finance capital investment
The purpose of financial markets is to match up savings with investment
Banks are the primary financial institutions that seek to match up savings with
investment
Capital Investments - Correct answer-Capital investment allows a country to
produce more goods and services
Bond Market - Correct answer-To raise the money, it may issue bonds
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,Principle is what you pay to get the bond; the company uses that principle to fund
it's project
Maturity date is when the bond holder will get the principle back
The interest rate is what the bondholder will earn until the bond matures
Defaulting - Correct answer-failing to repay a bond, loan, etc. Happens when a
company goes bankrupt, the bondholder will not get his money back
Credit ratings - Correct answer-Because firms can default, prospective bondholders
look up the firm's credit rating
The higher the risk the higher the interest rate offered
Bond holder - Correct answer-A bondholder isn't compelled to keep the bond until
it matures
If the bondholder needs money now, he can sell the bond on the open market
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,The new bondholder will receive the full face value at maturity plus the interest
listed on the bond
Stock market - Correct answer-A company may also finance its project by issuing
stock
When you own a share of stock, you are a partial owner of the company
This entitles you to dividends (the portion of company profits paid to shareholders)
Shareholders are free to sell their shares on the open market
Savers - Correct answer-Savers represent the supply of loanable funds; They
supply the money that banks loan to borrowers
Banks attract loanable funds by paying interest on deposits
The higher the interest rate, the greater the amount of loanable funds supplied
Borrowers - Correct answer-Borrowers represent the demand for loanable funds
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, The interest rate represents the price borrowers pay for a loan
The higher the interest rate, the more expensive the loan
Therefore, the higher the interest rate, the lower the quantity of funds demanded by
borrowers
If savings and investment are important for economic growth, what can be done to
increase savings? - Correct answer-The amount available to be loaned:
1. Private saving (saving by households and businesses)
2. Public saving (saving by government)
If savings and investment are important for economic growth, what can be done to
increase savings? pt. II - Correct answer-1. Tax shelters on savings
-People place more money into savings because earnings are not taxed (or not
taxed as much as previously)
2. Investment tax credits
©COPYRIGHT 2025, ALL RIGHTS RESERVE 4
Questions and Answers
Financial Markets - Correct answer-People save money that they don't intend to
spend anytime soon
Businesses need money to finance capital investment
The purpose of financial markets is to match up savings with investment
Banks are the primary financial institutions that seek to match up savings with
investment
Capital Investments - Correct answer-Capital investment allows a country to
produce more goods and services
Bond Market - Correct answer-To raise the money, it may issue bonds
©COPYRIGHT 2025, ALL RIGHTS RESERVE 1
,Principle is what you pay to get the bond; the company uses that principle to fund
it's project
Maturity date is when the bond holder will get the principle back
The interest rate is what the bondholder will earn until the bond matures
Defaulting - Correct answer-failing to repay a bond, loan, etc. Happens when a
company goes bankrupt, the bondholder will not get his money back
Credit ratings - Correct answer-Because firms can default, prospective bondholders
look up the firm's credit rating
The higher the risk the higher the interest rate offered
Bond holder - Correct answer-A bondholder isn't compelled to keep the bond until
it matures
If the bondholder needs money now, he can sell the bond on the open market
©COPYRIGHT 2025, ALL RIGHTS RESERVE 2
,The new bondholder will receive the full face value at maturity plus the interest
listed on the bond
Stock market - Correct answer-A company may also finance its project by issuing
stock
When you own a share of stock, you are a partial owner of the company
This entitles you to dividends (the portion of company profits paid to shareholders)
Shareholders are free to sell their shares on the open market
Savers - Correct answer-Savers represent the supply of loanable funds; They
supply the money that banks loan to borrowers
Banks attract loanable funds by paying interest on deposits
The higher the interest rate, the greater the amount of loanable funds supplied
Borrowers - Correct answer-Borrowers represent the demand for loanable funds
©COPYRIGHT 2025, ALL RIGHTS RESERVE 3
, The interest rate represents the price borrowers pay for a loan
The higher the interest rate, the more expensive the loan
Therefore, the higher the interest rate, the lower the quantity of funds demanded by
borrowers
If savings and investment are important for economic growth, what can be done to
increase savings? - Correct answer-The amount available to be loaned:
1. Private saving (saving by households and businesses)
2. Public saving (saving by government)
If savings and investment are important for economic growth, what can be done to
increase savings? pt. II - Correct answer-1. Tax shelters on savings
-People place more money into savings because earnings are not taxed (or not
taxed as much as previously)
2. Investment tax credits
©COPYRIGHT 2025, ALL RIGHTS RESERVE 4
