Question 1

If the government currently has a budget deficit,then

Accepted Answer

A) it does not necessarily have a debt. 
B) its debt is increasing. 
C) government expenditures are greater than taxes. 
D) All of the above are correct. 
A) it does not necessarily have a debt. 
B) its debt is increasing. 
C) government expenditures are greater than taxes. 
D) All of the above are correct.

Question 2

If the supply for loanable funds shifts right,the equilibrium interest rate

Accepted Answer

A) and quantity of loanable funds rise. 
B) and quantity of loanable funds fall. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises. 
A) and quantity of loanable funds rise. 
B) and quantity of loanable funds fall. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises.

Question 3

The country of Meditor uses the merit as its currency.Recent national income statistics showed that it had GDP of $700 million merits,no government transfer payments,taxes of $210 million merits,a budget surplus of $60 billion merits,and investment of $100 billion merits.What were its consumption and government expenditures on goods and services?

Accepted Answer

A) 450 million merits and $150 million merits 
B) 410 million merits and $150 million merits 
C) 330 million merits and $270 million merits 
D) 290 million merits and $270 million merits 
A) 450 million merits and $150 million merits 
B) 410 million merits and $150 million merits 
C) 330 million merits and $270 million merits 
D) 290 million merits and $270 million merits

Question 4

Suppose that in a closed economy GDP is $11 trillion,consumption is $7 trillion,taxes are $2 trillion and the government runs a deficit of $1 trillion.What are private saving and national saving?

Accepted Answer

A) $4 trillion and $1 trillion 
B) $4 trillion and -$1 trillion 
C) $2 trillion and $1 trillion 
D) $2 trillion and -$1 trillion 
A) $4 trillion and $1 trillion 
B) $4 trillion and -$1 trillion 
C) $2 trillion and $1 trillion 
D) $2 trillion and -$1 trillion

Question 5

If Canada increases its budget deficit,it will reduce

Accepted Answer

A) private saving and so shift the supply of loanable funds left. 
B) investment and so shift the demand for loanable funds left. 
C) public saving and so shift the supply of loanable funds left. 
D) None of the above is correct. 
A) private saving and so shift the supply of loanable funds left. 
B) investment and so shift the demand for loanable funds left. 
C) public saving and so shift the supply of loanable funds left. 
D) None of the above is correct.

Question 6

In a closed economy,what remains after paying for consumption and government purchases is

Accepted Answer

A) national disposable income. 
B) national saving. 
C) public saving. 
D) private saving. 
A) national disposable income. 
B) national saving. 
C) public saving. 
D) private saving.

Question 7

Which of the following is correct?

Accepted Answer

A) Lenders sell bonds and borrowers buy them. 
B) Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C) Junk bonds refer to bonds that have been resold many times. 
D) None of the above is correct. 
A) Lenders sell bonds and borrowers buy them. 
B) Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier. 
C) Junk bonds refer to bonds that have been resold many times. 
D) None of the above is correct.

Question 8

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers. 
A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers.

Question 9

Municipal bonds pay a relatively

Accepted Answer

A) low rate of interest because of their high-default risk and because the interest they pay is subject to federal income tax. 
B) low rate of interest because of their low-default risk and because the interest they pay is not subject to federal income tax. 
C) high rate of interest because of their high-default risk and because federal taxes must be paid on the interest they pay. 
D) high rate of interest because of their low-default risk and because the interest they pay is not subject to federal income tax. 
A) low rate of interest because of their high-default risk and because the interest they pay is subject to federal income tax. 
B) low rate of interest because of their low-default risk and because the interest they pay is not subject to federal income tax. 
C) high rate of interest because of their high-default risk and because federal taxes must be paid on the interest they pay. 
D) high rate of interest because of their low-default risk and because the interest they pay is not subject to federal income tax.

Question 10

Which of the following equations will always represent GDP in an open economy?

Accepted Answer

A) S = I - G 
B) I = Y - C + G 
C) Y = C + I + G 
D) Y = C + I + G + NX 
A) S = I - G 
B) I = Y - C + G 
C) Y = C + I + G 
D) Y = C + I + G + NX

Question 11

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

A) The demand for loanable funds shifted right. 
B) The demand for loanable funds shifted left. 
C) The supply of loanable funds shifted right. 
D) The supply of loanable funds shifted left. 
A) The demand for loanable funds shifted right. 
B) The demand for loanable funds shifted left. 
C) The supply of loanable funds shifted right. 
D) The supply of loanable funds shifted left.

Question 12

Stock indexes are

Accepted Answer

A) the average of a group of stock prices. 
B) the average of a group of stock yields. 
C) reports in the newspaper that report on the price of the stock and earnings of the corporation. 
D) measures of the risk relative to the profitability of corporations. 
A) the average of a group of stock prices. 
B) the average of a group of stock yields. 
C) reports in the newspaper that report on the price of the stock and earnings of the corporation. 
D) measures of the risk relative to the profitability of corporations.

Question 13

Other things the same,if the government increases transfer payments to households,then the effect of this on the government's budget

Accepted Answer

A) will make investment rise. 
B) will make the rate of interest rise. 
C) will make public saving rise. 
D) All of the above are correct. 
A) will make investment rise. 
B) will make the rate of interest rise. 
C) will make public saving rise. 
D) All of the above are correct.

Question 14

Suppose that the US offered a tax credit for firms who would build new factories in the US.Then,

Accepted Answer

A) the demand for loanable funds would shift right, initially creating a surplus of loanable funds at the original interest rate. 
B) the demand for loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate. 
C) the supply of loanable funds would shift right, initially creating a surplus of loanable funds at the original interest rate. 
D) the supply of loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate. 
A) the demand for loanable funds would shift right, initially creating a surplus of loanable funds at the original interest rate. 
B) the demand for loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate. 
C) the supply of loanable funds would shift right, initially creating a surplus of loanable funds at the original interest rate. 
D) the supply of loanable funds would shift right, initially creating a shortage of loanable funds at the original interest rate.

Question 15

The country of Aquolina 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 $2 billion in transfer payments to households.Private saving in Aquolina is $4 billion.What is investment in Aquolina?

Accepted Answer

A) $4 billion 
B) $3 billion 
C) $2 billion 
D) There is not enough information to answer the question. 
A) $4 billion 
B) $3 billion 
C) $2 billion 
D) There is not enough information to answer the question.

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

You are thinking of buying a bond from Knight Corporation.You know that this bond is long term and you know that Knight's business ventures are risky and uncertain.You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation.Which of the following is correct?

Accepted Answer

A) The longer term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower. 
B) The longer term would tend to make the interest rate on the bond issued by Knight lower, while the higher risk would tend to make the interest rate higher. 
C) Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Knight. 
D) Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Knight. 
A) The longer term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower. 
B) The longer term would tend to make the interest rate on the bond issued by Knight lower, while the higher risk would tend to make the interest rate higher. 
C) Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Knight. 
D) Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Knight.

Question 18

In a closed economy,national saving equals

Accepted Answer

A) investment. 
B) income minus the sum of consumption and government purchases. 
C) private saving plus public saving. 
D) All of the above are correct. 
A) investment. 
B) income minus the sum of consumption and government purchases. 
C) private saving plus public saving. 
D) All of the above are correct.

Question 19

If Congress instituted an investment tax credit,the interest rate would

Accepted Answer

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

Question 20

The prices of stock traded on exchanges are determined by

Accepted Answer

A) the Corporate Stock Administration. 
B) the administrators of NASDAQ. 
C) the supply and demand for the stock. 
D) All of the above are correct. 
A) the Corporate Stock Administration. 
B) the administrators of NASDAQ. 
C) the supply and demand for the stock. 
D) All of the above are correct.

Exam 26: Saving, investment, and the Financial System

If the government currently has a budget deficit,then

If the supply for loanable funds shifts right,the equilibrium interest rate

Suppose that in a closed economy GDP is $11 trillion,consumption is $7 trillion,taxes are $2 trillion and the government runs a deficit of $1 trillion.What are private saving and national saving?

If Canada increases its budget deficit,it will reduce

In a closed economy,what remains after paying for consumption and government purchases is

Which of the following is correct?

It is claimed that a secondary advantage of mutual funds is that

Municipal bonds pay a relatively

Which of the following equations will always represent GDP in an open economy?

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of loanable funds?

Stock indexes are

Other things the same,if the government increases transfer payments to households,then the effect of this on the government's budget

Suppose that the US offered a tax credit for firms who would build new factories in the US.Then,

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

In a closed economy,national saving equals

If Congress instituted an investment tax credit,the interest rate would

The prices of stock traded on exchanges are determined by

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Elasticity and Its Applications

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

Oligopoly

Monopolistic Competition

The Markets for the Factors of Production

Earnings and Discrimination

Income Inequality and Poverty

The Theory of Consumer Choice

Frontiers of Microeconomics

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

The Basic Tools of Finance

Unemployment

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 Trade Off Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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