__ 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.