Exam 27: Saving, Investment and the Financial System

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A company is looking to see what rate of return it is receiving from a project when the project's initial investment is $14 million today and will receive $18.5 million in four years.

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Question 1

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An increase in the government's budget deficit the real interest rate and the equilibrium quantity of national saving.

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Question 2

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Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the investment tax credit is abolished.

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Question 3

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As shown in the graph below, the economy starts in equilibrium at point E₀, with interest rate r₀ and equilibrium quantity saved and invested at q₀.If the investment tax credit is abolished, the incentive to invest is reduced, and less investment will be undertaken at each interest rate.Therefore, the demand-for-loanable-funds curve shifts from D₀ to D₁.The new equilibrium is at E₁, with a lower interest rate, r₁, and a lower level of saving and investment, Q₁.Hence, elimination of the investment tax credit reduces interest rates and reduces investment.

When the government borrows to finance its budget, private borrowers are still able to finance investment.

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Question 4

When the government runs a budget surplus, it uses the funds to:

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Question 5

If the real interest rate and the nominal interest rate was three per cent in 2005, then the inflation rate in 2005 would be:

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Question 6

Australian government bonds are considered as being less risky and pay relatively low interest rates because:

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Question 7

How does the introduction of new technologies affect saving, investment and the real interest rate?

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Question 8

If consumption spending increases by $10 million with no changes in net transfer payments, then:

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Question 9

The financial system consists of those institutions in the economy that help to match one person's saving with another person's investment.

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Question 10

Financial intermediaries are:

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Question 11

Where Y is GDP, C is consumption, T is net taxes and G is government spending, if there is no international trade, then the government budget surplus equals:

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Question 12

If a company's bond can be purchased today and expects to earn investors 5% p.a, paying $100 at the end of 25 years, what is today's price? What could occur, to the price of the bonds if the company's level of risk increases? Why?

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Question 13

Shares enable firms to raise debt financing as the firm is in debt to its owners.

(True/False)

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Question 14

Investing in managed funds is an attempt to diversify risk across a range of investment options.

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Question 15

The demand for loanable funds is downward-sloping because:

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Question 16

Define crowding out and explain its implication on the economy.

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Question 17

The term of a bond is:

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Question 18

Holding other factors constant, if a change in tax laws encourages people to save more for retirement, then the real interest rate will increase and the equilibrium quantity of saving and investment will decrease.

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Question 19

Where Y is GDP, C is consumption, I is investment and G is government spending, if there is no international trade, then national saving equals:

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Question 20

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Exam 27: Saving, Investment and the Financial System

A company is looking to see what rate of return it is receiving from a project when the project's initial investment is $14 million today and will receive $18.5 million in four years.

An increase in the government's budget deficit ____ the real interest rate and ____ the equilibrium quantity of national saving.

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the investment tax credit is abolished.

When the government borrows to finance its budget, private borrowers are still able to finance investment.

When the government runs a budget surplus, it uses the funds to:

If the real interest rate and the nominal interest rate was three per cent in 2005, then the inflation rate in 2005 would be:

Australian government bonds are considered as being less risky and pay relatively low interest rates because:

How does the introduction of new technologies affect saving, investment and the real interest rate?

If consumption spending increases by $10 million with no changes in net transfer payments, then:

The financial system consists of those institutions in the economy that help to match one person's saving with another person's investment.

Financial intermediaries are:

Where Y is GDP, C is consumption, T is net taxes and G is government spending, if there is no international trade, then the government budget surplus equals:

If a company's bond can be purchased today and expects to earn investors 5% p.a, paying $100 at the end of 25 years, what is today's price? What could occur, to the price of the bonds if the company's level of risk increases? Why?

Shares enable firms to raise debt financing as the firm is in debt to its owners.

Investing in managed funds is an attempt to diversify risk across a range of investment options.

The demand for loanable funds is downward-sloping because:

Define crowding out and explain its implication on the economy.

The term of a bond is:

Holding other factors constant, if a change in tax laws encourages people to save more for retirement, then the real interest rate will increase and the equilibrium quantity of saving and investment will decrease.

Where Y is GDP, C is consumption, I is investment and G is government spending, if there is no international trade, then national saving equals:

Ten Lessons From 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

Application: 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

Business Strategy and Oligopoly

Competition Policy

The Markets for the Factors of Production

Earnings, Unions and Discrimination

Income Inequity and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Natural Rate of Unemployment

The Monetary System

Inflation: Its Causes and Costs

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 Trade-Off Between Inflation and Unemployment

Global Financial Crisis of 2008 and Beyond

Five Debates Over Macroeconomic Policy

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An increase in the government's budget deficit the real interest rate and the equilibrium quantity of national saving.