Question 1

Which of the following statements is false?

Accepted Answer

A) Saving equals wealth minus consumption expenditure. 
B) Saving is the source of funds used to finance investment. 
C) Saving adds to wealth. 
D) Income left after paying taxes can either be consumed or saved. 
E) Saving supplies funds in loan markets, bond markets, and stock markets. 
A) Saving equals wealth minus consumption expenditure. 
B) Saving is the source of funds used to finance investment. 
C) Saving adds to wealth. 
D) Income left after paying taxes can either be consumed or saved. 
E) Saving supplies funds in loan markets, bond markets, and stock markets.

Question 2

Use the table below to answer the following questions.
Table 7.2.2
The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule.  
-Consider Table 7.2.2.If planned investment decreases by $1.0 trillion at each real interest rate, what is the new equilibrium real interest rate?

Accepted Answer

A) 5 percent a year 
B) 2.5 percent a year 
C) 3.5 percent a year 
D) 2 percent a year 
E) There is no new equilibrium real interest rate. 
A) 5 percent a year 
B) 2.5 percent a year 
C) 3.5 percent a year 
D) 2 percent a year 
E) There is no new equilibrium real interest rate.

Question 3

If the Ricardo- Barro effect occurs, _______ in private saving finances the government budget deficit, and the real interest rate _______.

Accepted Answer

A) a decrease; does not change 
B) a decrease; rises 
C) an increase; falls 
D) an increase; rises 
E) an increase; does not change 
A) a decrease; does not change 
B) a decrease; rises 
C) an increase; falls 
D) an increase; rises 
E) an increase; does not change

Question 4

The crowding- out effect refers to

Accepted Answer

A) a government deficit crowding out investment. 
B) private investment crowding out government saving. 
C) private saving crowding out government saving. 
D) government spending crowding out private spending. 
E) private saving crowding out net taxes. 
A) a government deficit crowding out investment. 
B) private investment crowding out government saving. 
C) private saving crowding out government saving. 
D) government spending crowding out private spending. 
E) private saving crowding out net taxes.

Question 5

In which market would you find mortgage- backed securities?

Accepted Answer

A) bond market 
B) housing market 
C) capital market 
D) stock market 
E) loan market 
A) bond market 
B) housing market 
C) capital market 
D) stock market 
E) loan market

Question 6

Refer to the table below to answer the following question.
Table 7.3.4  
-Table 7.3.4 shows an economy's demand for loanable funds schedule and the private supply of loanable funds schedule when the government's budget is balanced.If the government budget deficit becomes $1.0 trillion, the real interest rate is _______ percent a year, the quantity of investment is _______ trillion, and the quantity of private saving is _______ trillion.

Accepted Answer

A) 7; $8.5; $5.5 
B) 5; $7.5; $6.5 
C) 5; $6.5; $7.5 
D) 3; $6.5; $7.0 
E) 7; $5.5; $8.5 
A) 7; $8.5; $5.5 
B) 5; $7.5; $6.5 
C) 5; $6.5; $7.5 
D) 3; $6.5; $7.0 
E) 7; $5.5; $8.5

Question 7

Refer to the table below to answer the following question.
Table 7.3.2  
-Table 7.3.2 shows an economy's demand for loanable funds and supply of loanable funds schedules when the government's budget is balanced.The quantity of loanable funds demanded increases by $1 trillion at each real interest rate and the quantity of loanable funds supplied increases by $2 trillion at each real interest rate.If the government wants investment to be $9 trillion, it must _______ its budget balance by _______ trillion.

Accepted Answer

A) increase; $1 
B) increase; $1.5 
C) decrease; $1 
D) increase; $2 
E) decrease; $1.5 
A) increase; $1 
B) increase; $1.5 
C) decrease; $1 
D) increase; $2 
E) decrease; $1.5

Question 8

If disposable income increases, people _______ saving and the real interest rate _______.

Accepted Answer

A) decrease; rises 
B) decrease; falls 
C) increase; falls 
D) increase; rises 
E) increase; rises or falls depending on the shift of the demand curve for loanable funds 
A) decrease; rises 
B) decrease; falls 
C) increase; falls 
D) increase; rises 
E) increase; rises or falls depending on the shift of the demand curve for loanable funds

Question 9

When government saving is negative,

Accepted Answer

A) the real interest rate rises. 
B) investment increases. 
C) the real interest rate falls if crowding- out occurs. 
D) the real interest rate falls. 
E) the supply of loanable funds increases. 
A) the real interest rate rises. 
B) investment increases. 
C) the real interest rate falls if crowding- out occurs. 
D) the real interest rate falls. 
E) the supply of loanable funds increases.

Question 10

Refer to the figure below to answer the following questions.
   Figure 7.2.2
-In Figure 7.2.2, a decrease in expected profit will result in a movement from point E to

Accepted Answer

A) point F. 
B) point G. 
C) point H. 
D) point I. 
E) either point G or point H. 
A) point F. 
B) point G. 
C) point H. 
D) point I. 
E) either point G or point H.

Question 11

Refer to the figure below to answer the following questions.
   Figure 7.2.3
-In Figure 7.2.3, when the real interest rate is 6 percent, the quantity of loanable funds demanded is

Accepted Answer

A) $300 billion. 
B) $450 billion. 
C) $150 billion. 
D) any amount less than $450 billion. 
E) $600 billion. 
A) $300 billion. 
B) $450 billion. 
C) $150 billion. 
D) any amount less than $450 billion. 
E) $600 billion.

Question 12

The greater a household's _______ the less is its saving.

Accepted Answer

A) expected future profit 
B) disposable income 
C) taxes 
D) wealth 
E) return from saving 
A) expected future profit 
B) disposable income 
C) taxes 
D) wealth 
E) return from saving

Question 13

Refer to the figure below to answer the following question.
   Figure 7.2.1
-In Figure 7.2.1, the economy is at point A.What happens if the real interest rate rises?

Accepted Answer

A) There is a movement to a point such as B. 
B) The demand for loanable funds curve shifts rightward to curve DLF2. 
C) The demand for loanable funds curve shifts leftward to curve DLF1. 
D) Either A or B can occur. 
E) Either A or C can occur. 
A) There is a movement to a point such as B. 
B) The demand for loanable funds curve shifts rightward to curve DLF2. 
C) The demand for loanable funds curve shifts leftward to curve DLF1. 
D) Either A or B can occur. 
E) Either A or C can occur.

Question 14

Suppose that you took out a $1,000 loan in January and were required to pay $75 in annual interest.During the year, inflation was 6 percent.Which of the following statements is correct?

Accepted Answer

A) The real interest rate is 6 percent and the nominal interest rate is - 1.5 percent. 
B) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. 
C) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. 
D) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent. 
E) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent. 
A) The real interest rate is 6 percent and the nominal interest rate is - 1.5 percent. 
B) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. 
C) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. 
D) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent. 
E) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent.

Question 15

A government budget surplus occurs, which _______ loanable funds.The real interest rate _______, household saving _______, and investment _______.

Accepted Answer

A) decreases the supply of; decreases; decreases; increases 
B) decreases the demand for; falls; decreases; increases 
C) increases the supply of; falls; decreases; increases 
D) increases the demand for; rises; increases; decreases 
E) increases the supply of; falls; increases; decreases 
A) decreases the supply of; decreases; decreases; increases 
B) decreases the demand for; falls; decreases; increases 
C) increases the supply of; falls; decreases; increases 
D) increases the demand for; rises; increases; decreases 
E) increases the supply of; falls; increases; decreases

Question 16

Refer to the figure below to answer the following questions.
   Figure 7.2.5
-In Figure 7.2.5, the supply of loanable funds curve is SLF0 and the demand for loanable funds curve is DLF0.An expansion that increases disposable income and expected profit

Accepted Answer

A) increases the inflation rate. 
B) has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. 
C) shifts the supply of loanable funds curve rightward to curve SLF1, and shifts the demand for loanable funds curve rightward to curve DLF1. 
D) shifts the demand for loanable funds curve rightward to curve DLF1 and does not shift the supply of loanable funds curve. 
E) shifts the supply of loanable funds curve rightward to curve SLF1 and does not shift the demand for loanable funds curve. 
A) increases the inflation rate. 
B) has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. 
C) shifts the supply of loanable funds curve rightward to curve SLF1, and shifts the demand for loanable funds curve rightward to curve DLF1. 
D) shifts the demand for loanable funds curve rightward to curve DLF1 and does not shift the supply of loanable funds curve. 
E) shifts the supply of loanable funds curve rightward to curve SLF1 and does not shift the demand for loanable funds curve.

Question 17

The tendency for private saving to increase in response to growing government deficits is known as the

Accepted Answer

A) Ricardo- Barro effect. 
B) money illusion effect. 
C) Malthusian effect. 
D) Keynes effect. 
E) crowding out effect. 
A) Ricardo- Barro effect. 
B) money illusion effect. 
C) Malthusian effect. 
D) Keynes effect. 
E) crowding out effect.

Question 18

Investment is financed by which of the following? I.Government spending
II.Household saving
III.Borrowing from the rest of the world

Accepted Answer

A) I and III only 
B) I and II only 
C) I, II, and III 
D) II and III only 
E) II only 
A) I and III only 
B) I and II only 
C) I, II, and III 
D) II and III only 
E) II only

Question 19

Net investment equals

Accepted Answer

A) gross investment minus depreciation. 
B) wealth minus saving. 
C) gross investment divided by depreciation. 
D) gross investment plus depreciation. 
E) capital minus depreciation. 
A) gross investment minus depreciation. 
B) wealth minus saving. 
C) gross investment divided by depreciation. 
D) gross investment plus depreciation. 
E) capital minus depreciation.

Question 20

The change in the value of capital is

Accepted Answer

A) saving. 
B) net investment. 
C) depreciation. 
D) wealth. 
E) gross investment. 
A) saving. 
B) net investment. 
C) depreciation. 
D) wealth. 
E) gross investment.

Which of the following statements is false?

If the Ricardo- Barro effect occurs, _ in private saving finances the government budget deficit, and the real interest rate _.

The crowding- out effect refers to

In which market would you find mortgage- backed securities?

If disposable income increases, people _ saving and the real interest rate _.

When government saving is negative,

Refer to the figure below to answer the following questions. Figure 7.2.2 -In Figure 7.2.2, a decrease in expected profit will result in a movement from point E to

Refer to the figure below to answer the following questions. Figure 7.2.3 -In Figure 7.2.3, when the real interest rate is 6 percent, the quantity of loanable funds demanded is

The greater a household's _______ the less is its saving.

Refer to the figure below to answer the following question. Figure 7.2.1 -In Figure 7.2.1, the economy is at point A.What happens if the real interest rate rises?

Suppose that you took out a $1,000 loan in January and were required to pay $75 in annual interest.During the year, inflation was 6 percent.Which of the following statements is correct?

A government budget surplus occurs, which ___ loanable funds.The real interest rate _, household saving _, and investment ___.

Refer to the figure below to answer the following questions. Figure 7.2.5 -In Figure 7.2.5, the supply of loanable funds curve is SLF₀and the demand for loanable funds curve is DLF₀.An expansion that increases disposable income and expected profit

The tendency for private saving to increase in response to growing government deficits is known as the

Investment is financed by which of the following? I.Government spending II.Household saving III.Borrowing from the rest of the world

Net investment equals

The change in the value of capital is

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 7: Finance, Saving, and Investment

Which of the following statements is false?

If the Ricardo- Barro effect occurs, _______ in private saving finances the government budget deficit, and the real interest rate _______.

The crowding- out effect refers to

In which market would you find mortgage- backed securities?

If disposable income increases, people _______ saving and the real interest rate _______.

When government saving is negative,

Refer to the figure below to answer the following questions. Figure 7.2.2 -In Figure 7.2.2, a decrease in expected profit will result in a movement from point E to

Refer to the figure below to answer the following questions. Figure 7.2.3 -In Figure 7.2.3, when the real interest rate is 6 percent, the quantity of loanable funds demanded is

The greater a household's _______ the less is its saving.

Refer to the figure below to answer the following question. Figure 7.2.1 -In Figure 7.2.1, the economy is at point A.What happens if the real interest rate rises?

Suppose that you took out a $1,000 loan in January and were required to pay $75 in annual interest.During the year, inflation was 6 percent.Which of the following statements is correct?

A government budget surplus occurs, which _______ loanable funds.The real interest rate _______, household saving _______, and investment _______.

Refer to the figure below to answer the following questions. Figure 7.2.5 -In Figure 7.2.5, the supply of loanable funds curve is SLF0 and the demand for loanable funds curve is DLF0.An expansion that increases disposable income and expected profit

The tendency for private saving to increase in response to growing government deficits is known as the

Investment is financed by which of the following? I.Government spending II.Household saving III.Borrowing from the rest of the world

Net investment equals

The change in the value of capital is

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

If the Ricardo- Barro effect occurs, _ in private saving finances the government budget deficit, and the real interest rate _.

If disposable income increases, people _ saving and the real interest rate _.

A government budget surplus occurs, which ___ loanable funds.The real interest rate _, household saving _, and investment ___.

Refer to the figure below to answer the following questions. Figure 7.2.5 -In Figure 7.2.5, the supply of loanable funds curve is SLF₀and the demand for loanable funds curve is DLF₀.An expansion that increases disposable income and expected profit