Exam 27: Saving, Investment and the Financial System

Playworld is thinking about investing in a new theme park.Suppose that the project costs $7 million and will yield the company $20 million in 10 years.If the interest rate is five per cent, what is the present value of the yield in 10 years? What will be the future value of the $7 million investment? Should Playworld invest in the project?

Using the national income accounting identity, derive the relationship between national saving and investment.Also decompose national saving into private saving and public saving.

The market for loanable funds can be modeled on a supply and demand schedule even though there are many exogenous circumstances that affect the price of funds.

Banks play two primary roles in the economy: they take in deposits from savers and lend these to borrowers, and they facilitate purchases of goods and services by allowing people to write cheques against their deposits.

The excess of government tax collections over government spending is:

Long-term bonds usually pay a higher interest rate than do short-term bonds because long-term bonds are riskier.

The financial system moves the economy's scarce resources from:

Financial markets are:

When setting up a business, you might need to purchase a building, computer, filing cabinets and furniture.This type of purchase would be called ____ by an economist.

What would happen in the market for loanable funds if the government were to decrease the tax on interest income?

What would happen to investment if the government were to increase the tax on interest income?

The type of bond that never matures is called:

Since all free markets, including financial markets, use the forces of supply and demand to determine prices, how do financial markets differ from other markets?

Government policies are incapable of influencing interest rates and, therefore, cannot affect society's allocation of scarce resources.

Which of the following statements is not correct about notional accounting identity?

Wealth decreases as a result of negative savings and/or crowding out.

A low P/E ratio indicates that the share price of a company is expensive compared to the company's expected earnings.

A bond is:

In a closed economy, national saving can be expressed by the equation S = (Y - T - C) + (T - G).What does (Y - T - C) represent?

An increase in net taxes (that is, taxes paid by the private sector to the government, less transfer payments and interest payments made by the government to the private sector) will: