Exam 8: Saving, Investment, and the Financial System

Which equation most simply represents GDP in a closed economy?

The country of Hrykania does not trade with any other country. Its GDP is $20 billion. Its government purchases $3 billion worth of goods and services each year, collects $3 billion in taxes, and provides $1 billion in transfer payments to households. Private saving in Hyrkania is $4 billion. What is investment in Hyrkania?

In a closed economy, what is private saving?

Melinda buys a paint sprayer and a hydraulic lift for her car customizing shop. A macroeconomist would refer to these purchases as investment.

In a closed economy, the fact that total income equals total expenditure is reflected by the GDP identity Y = C + I + G. a. Starting from the GDP identity, show that national saving (S) must be equal to investment. Show that an increase in government spending reduces national saving. b. Rewrite the GDP identity by introducing taxes (T). In this new form of the GDP relationship, identify private saving and public saving. Show that an increase in taxes has no effect on national saving. c. Is the equation S = I true for an open economy? Could you explain why or why not?

Approximately how many firms are included in the S&P/TSX stock index?

In 1995, MP Bill Gatt proposed that the income tax be replaced with a consumption tax. If his program had been passed, how would the equilibrium interest rate and the quantity of loanable funds have been affected?

Identify each of the following actions as representing either saving or investment. a. Fred uses some of his income to buy government bonds. b. Julie takes some of her income and buys mutual funds. c. Alex hires a contractor to add two additional examination rooms to his dental office using borrowed funds. d. Elaine uses some of her savings to buy stock for her new clothing boutique. e. Henrietta hires a builder to construct a new home using borrowed funds.

What does a general, persistent decline in stock prices signal about an economy?

Assuming that other things remain the same, if the government increases transfer payments to households, what will most likely happen?

Which statement best describes the relationship between government deficit and government debt?

If the current market interest rate for loanable funds is above the equilibrium level, what will most likely happen?

Which term refers to the length of time until a bond matures?

In a closed economy, what does national saving equal?

Which term refers to the profits paid out to shareholders?

Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then domestic investment and national saving are both $1 billion.

Suppose that in a closed economy GDP is equal to 30,000, taxes are equal to 5000, consumption is equal to 15000, and government expenditures are equal to 6200. What is public saving?

Suppose that in a closed economy GDP is equal to 22,000, taxes are equal to 7000, consumption is equal to 13,000, and government expenditures are equal to 4000. What is private saving?

Other things the same, the higher the rate of saving and investment in a country, the higher the standard of living will be.

Which bond is most likely to default?