Question 1

The source of the supply of loanable funds

Accepted Answer

A) is saving and the source of demand for loanable funds is investment. 
B) is investment and the source of demand for loanable funds is saving. 
C) and the demand for loanable funds is saving. 
D) and the demand for loanable funds is investment. 
A) is saving and the source of demand for loanable funds is investment. 
B) is investment and the source of demand for loanable funds is saving. 
C) and the demand for loanable funds is saving. 
D) and the demand for loanable funds is investment.

Question 2

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 3

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Accepted Answer

A) Public and national saving would rise. 
B) Public and national saving would fall. 
C) Public saving would rise and national saving would fall. 
D) Public saving would fall and national saving would rise. 
A) Public and national saving would rise. 
B) Public and national saving would fall. 
C) Public saving would rise and national saving would fall. 
D) Public saving would fall and national saving would rise.

Question 4

A mutual fund

Accepted Answer

A) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of both stocks and bonds. 
A) is a financial market where small firms mutually agree to sell stocks and bonds to raise funds. 
B) is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community. 
C) sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit. 
D) is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of both stocks and bonds.

Question 5

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run.

Accepted Answer

A) True 
 B)False

Question 6

Figure 26-1
The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves.  
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A) In response to tax reform, firms are encouraged to invest more than they previously invested. 
B) In response to tax reform, households are encouraged to save more than they previously saved. 
C) Government goes from running a balanced budget to running a budget deficit. 
D) Any of the above events would shift the supply curve from S1 to S2. 
A) In response to tax reform, firms are encouraged to invest more than they previously invested. 
B) In response to tax reform, households are encouraged to save more than they previously saved. 
C) Government goes from running a balanced budget to running a budget deficit. 
D) Any of the above events would shift the supply curve from S1 to S2.

Question 7

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 8

For a closed economy, GDP is $37 trillion, consumption is $10 trillion, taxes are $2.0 trillion and the government runs a surplus of $3 trillion. What are private saving and national saving?

Accepted Answer

A) $25.0 trillion and $28.0 trillion, respectively 
B) $28.0 trillion and $25.0 trillion, respectively 
C) −$25.0 trillion and −$28.0 trillion, respectively 
D) −$25.0 trillion and $28.0 trillion, respectively 
A) $25.0 trillion and $28.0 trillion, respectively 
B) $28.0 trillion and $25.0 trillion, respectively 
C) −$25.0 trillion and −$28.0 trillion, respectively 
D) −$25.0 trillion and $28.0 trillion, respectively

Question 9

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 10

Refer to Scenario 26-1. This economy's government is running a budget

Accepted Answer

A) surplus of $7,000. 
B) deficit of $6,000. 
C) deficit of $7,000. 
D) surplus of $6,000. 
A) surplus of $7,000. 
B) deficit of $6,000. 
C) deficit of $7,000. 
D) surplus of $6,000.

Question 11

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 12

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 13

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy

Question 14

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is

Accepted Answer

A) $6 billion and consumption is $7 billion. 
B) $6 billion and consumption is $6 billion. 
C) $7 billion and consumption is $7 billion. 
D) $7 billion and consumption is $6 billion. 
A) $6 billion and consumption is $7 billion. 
B) $6 billion and consumption is $6 billion. 
C) $7 billion and consumption is $7 billion. 
D) $7 billion and consumption is $6 billion.

Question 15

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?

Accepted Answer

A) "U.S.government bonds generally pay a higher rate of interest than corporate bonds." 
B) "The interest received on corporate bonds is taxable." 
C) "U.S.government bonds have the lowest default risk." 
D) "If you purchase a municipal bond, you can sell it before it matures." 
A) "U.S.government bonds generally pay a higher rate of interest than corporate bonds." 
B) "The interest received on corporate bonds is taxable." 
C) "U.S.government bonds have the lowest default risk." 
D) "If you purchase a municipal bond, you can sell it before it matures."

Question 16

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 17

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 18

An increase in the government's budget surplus means public saving is

Accepted Answer

A) positive and increasing. 
B) positive and decreasing. 
C) negative and increasing. 
D) negative and decreasing. 
A) positive and increasing. 
B) positive and decreasing. 
C) negative and increasing. 
D) negative and decreasing.

Question 19

On which of these bonds is the prospect of default most likely?

Accepted Answer

A) A junk bond 
B) A municipal bond 
C) A U.S.government bond 
D) A corporate bond issued by Proctor & Gamble Corporation 
A) A junk bond 
B) A municipal bond 
C) A U.S.government bond 
D) A corporate bond issued by Proctor & Gamble Corporation

Question 20

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Exam 26: Saving, Investment, and the Financial System

The source of the supply of loanable funds

In a closed economy, investment must be equal to private saving.

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

A mutual fund

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run.

Figure 26-1 The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

By definition, government purchases and taxes are zero for a closed economy.

For a closed economy, GDP is $37 trillion, consumption is $10 trillion, taxes are $2.0 trillion and the government runs a surplus of $3 trillion. What are private saving and national saving?

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Refer to Scenario 26-1. This economy's government is running a budget

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

An increase in the government's budget surplus means public saving is

On which of these bonds is the prospect of default most likely?

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Application

Supply, Demand, and Government Policies

Consumers, Producers, and the Efficiency of Markets

Applications: The Costs of Taxation

Application: International Trade

Externalities

Public Goods and Common Resources

The Design of the Tax System

The Costs of Production

Firms in Competitive Markets

Monopoly

Monopolistic Competition

Oligopoly

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers in Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

Filters

Figure 26-1 The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S₁ to S₂?