Question 1

When the government runs a budget deficit,

Accepted Answer

A)   interest rates are lower than they would be if the budget were balanced.
B)   national saving is higher than it would be if the budget were balanced.
C)   investment is lower than it would be if the budget were balanced.
D)   All of the above are correct.E) A) and D)
F) B) and C)

Question 2

Which of the following is not correct?

Accepted Answer

A)   By saving a larger portion of its GDP,a country can raise its output per worker.
B)   Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date.
C)   Financial intermediaries are the only type of financial institution.
D)   The financial system helps match people's saving with other people's borrowing.E) A) and B)
F) A) and C)

Question 3

Suppose the city of Springfield has a high credit rating,and so when Springfield borrows funds by selling bonds,

Accepted Answer

A)   the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.
B)   the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply.
C)   the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply.
D)   the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.E) None of the above
F) All of the above

Question 4

A budget surplus is created if

Accepted Answer

A)   the government sells more bonds than it buys back.
B)   the government spends more than it receives in tax revenue.
C)   private saving is greater than zero.
D)   None of the above is correct.E) B) and C)
F) A) and D)

Question 5

Y = C + I + G + NX is an identity because

Accepted Answer

A)   each symbol identifies a macroeconomic variable.
B)   the right-hand and left-hand sides are equal when an equilibrium is reached.
C)   the equality holds due to the way the variables are defined.
D)   None of the above is correct.E) A) and C)
F) A) and B)

Question 6

Other things the same,a government budget deficit

Accepted Answer

A)   reduces public saving,but not national saving..
B)   reduces national saving,but not public saving.
C)   reduces both public and national saving.
D)   reduces neither public saving nor national saving.E) C) and D)
F) B) and D)

Question 7

Suppose the government ran a budget surplus in 2008 and a larger surplus in 2009.The loanable funds model would predict that,as a result of the increase in the surplus,

Accepted Answer

A)   both the government debt and interest rates increased between 2008 and 2009.
B)   both the government debt and interest rates decreased between 2008 and 2009.
C)   the government debt increased and interest rates decreased between 2008 and 2009.
D)   the government debt decreased and interest rates increased between 2008 and 2009.E) A) and D)
F) B) and C)

Question 8

A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

Accepted Answer

A)   in our model of the loanable funds market,we define "loanable funds" as the flow of resources available to fund private investment.
B)   in our model of the loanable funds market,we define "loanable funds" as the flow of resources available from private saving.
C)   markets for government debt are fundamentally different from markets for private debt.
D)   of our assumption that the economy is closed.E) B) and D)
F) All of the above

Question 9

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500,consumption equals 7,000,and government purchases equal 3,000.What are private saving and public saving?

Accepted Answer

A)   1,500 and -500,respectively
B)   1,500 and 500,respectively
C)   1,000 and -500,respectively
D)   1,000 and 500,respectivelyE) All of the above
F) B) and D)

Question 10

Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a

Accepted Answer

A)   saver or as a supplier of funds.
B)   saver or as a demander of funds.
C)   borrower or as a supplier of funds.
D)   borrower or as a demander of funds.E) B) and C)
F) None of the above

Question 11

If,for an imaginary closed economy,investment amounts to $12,000 and the government is running a $2,000 deficit,then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 12

The country of Hykenia does not trade with any other country.Its GDP is $20 billion.Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments.Consumption equals $15 billion and investment equals $2 billion.What is public saving in Hykenia,and what is the value of the goods and services purchased by the government of Hykenia?

Accepted Answer

A)   -$2 billion and $3 billion
B)   $1 billion and $3 billion
C)   -$1 billion and $4 billion
D)   There is not enough information to answer the question.E) None of the above
F) A) and C)

Question 13

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed.The result would be that the interest rate

Accepted Answer

A)   and investment both would increase.
B)   and investment both would decrease.
C)   would increase and investment would decrease.
D)   would decrease and investment would increase.E) A) and D)
F) None of the above

Question 14

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Accepted Answer

A)   The government budget went from surplus to deficit.
B)   The government instituted an investment tax credit.
C)   The government reduced the tax rate on savings.
D)   None of the above is correct.E) A) and B)
F) A) and C)

Question 15

The country of Growpaw does not trade with any other country.Its GDP is $17 billion.Its government purchases $4 billion worth of goods and services each year,collects $6 billion in taxes,and provides $1 billion in transfer payments to households.Private saving in Growpaw is $4 billion.For Growpaw,

Accepted Answer

A)   investment is $6 billion and consumption is $9 billion.
B)   investment is $6 billion and consumption is $8 billion.
C)   investment is $5 billion and consumption is $8 billion.
D)   investment is $5 billion and consumption is $7 billion.E) None of the above
F) A) and D)

Question 16

Net exports must equal zero for any economy

Accepted Answer

A)   that is closed.
B)   for which Y = C + I + G.
C)   for which S = Y - C - G.
D)   All of the above are correct.E) B) and D)
F) A) and B)

Question 17

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit.What would happen to the interest rate?

Accepted Answer

A)   It would decrease.
B)   It would increase.
C)   It would stay the same.
D)   It might do any of the above.E) None of the above
F) C) and D)

Question 18

If national saving in a closed economy is greater than zero,which of the following must be true?

Accepted Answer

A)   Either public saving or private saving must be greater than zero.
B)   Investment is positive.
C)   Y - C - G > 0
D)   All of the above are correct.E) None of the above
F) All of the above

Question 19

Which of the following is not always correct for a closed economy?

Accepted Answer

A)   National saving equals private saving plus public saving.
B)   Net exports equal zero.
C)   Real GDP measures both income and expenditures.
D)   Private saving equals investment.E) A) and D)
F) B) and C)

Question 20

Stock represents

Accepted Answer

A)   a claim to a share of the profits of a firm.
B)   ownership in a firm.
C)   equity finance.
D)   All of the above are correctE) None of the above
F) A) and C)

Exam 26: Saving, investment, and the Financial System

Net exports must equal zero for any economy

Correct Answer
verified

Which of the following is not always correct for a closed economy?

Correct Answer
verified

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500,consumption equals 7,000,and government purchases equal 3,000.What are private saving and public saving?

Correct Answer
verified

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed.The result would be that the interest rate

Correct Answer
verified

A budget surplus is created if

Correct Answer
verified

Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a

Correct Answer
verified

Correct Answer
verified

Suppose the city of Springfield has a high credit rating,and so when Springfield borrows funds by selling bonds,

Correct Answer
verified

If national saving in a closed economy is greater than zero,which of the following must be true?

Correct Answer
verified

Suppose the government ran a budget surplus in 2008 and a larger surplus in 2009.The loanable funds model would predict that,as a result of the increase in the surplus,

Correct Answer
verified

Other things the same,a government budget deficit

Correct Answer
verified

If,for an imaginary closed economy,investment amounts to $12,000 and the government is running a $2,000 deficit,then private saving must amount to $10,000.

Correct Answer
verified

When the government runs a budget deficit,

Correct Answer
verified

Stock represents

Correct Answer
verified

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Correct Answer
verified

The country of Growpaw does not trade with any other country.Its GDP is $17 billion.Its government purchases $4 billion worth of goods and services each year,collects $6 billion in taxes,and provides $1 billion in transfer payments to households.Private saving in Growpaw is $4 billion.For Growpaw,

Correct Answer
verified

A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

Correct Answer
verified

Which of the following is not correct?

Correct Answer
verified

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit.What would happen to the interest rate?

Correct Answer
verified

Y = C + I + G + NX is an identity because

Correct Answer
verified

Exam 26: Saving, investment, and the Financial System

Net exports must equal zero for any economy

Correct AnswerverifiedShow Answer

Which of the following is not always correct for a closed economy?

Correct AnswerverifiedShow Answer

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500,consumption equals 7,000,and government purchases equal 3,000.What are private saving and public saving?

Correct AnswerverifiedShow Answer

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed.The result would be that the interest rate

Correct AnswerverifiedShow Answer

A budget surplus is created if

Correct AnswerverifiedShow Answer

Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Suppose the city of Springfield has a high credit rating,and so when Springfield borrows funds by selling bonds,

Correct AnswerverifiedShow Answer

If national saving in a closed economy is greater than zero,which of the following must be true?

Correct AnswerverifiedShow Answer

Suppose the government ran a budget surplus in 2008 and a larger surplus in 2009.The loanable funds model would predict that,as a result of the increase in the surplus,

Correct AnswerverifiedShow Answer

Other things the same,a government budget deficit

Correct AnswerverifiedShow Answer

If,for an imaginary closed economy,investment amounts to $12,000 and the government is running a $2,000 deficit,then private saving must amount to $10,000.

Correct AnswerverifiedShow Answer

When the government runs a budget deficit,

Correct AnswerverifiedShow Answer

Stock represents

Correct AnswerverifiedShow Answer

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Correct AnswerverifiedShow Answer

The country of Growpaw does not trade with any other country.Its GDP is $17 billion.Its government purchases $4 billion worth of goods and services each year,collects $6 billion in taxes,and provides $1 billion in transfer payments to households.Private saving in Growpaw is $4 billion.For Growpaw,

Correct AnswerverifiedShow Answer

A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

Correct AnswerverifiedShow Answer

Which of the following is not correct?

Correct AnswerverifiedShow Answer

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit.What would happen to the interest rate?

Correct AnswerverifiedShow Answer

Y = C + I + G + NX is an identity because

Correct AnswerverifiedShow Answer

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