Question 1

Crowding out is the tendency for increased government deficits to:

Accepted Answer

A) reduce investment spending. 
B) increase investment spending. 
C) reduce consumption spending. 
D) increase consumption spending. 
A) reduce investment spending. 
B) increase investment spending. 
C) reduce consumption spending. 
D) increase consumption spending. A

Question 2

A measure defined at a point in time is called a(n)________ variable.

Accepted Answer

A) stock 
B) nominal 
C) aggregate 
D) flow 
A) stock 
B) nominal 
C) aggregate 
D) flow A

Question 3

A real interest rate that causes the quantity of saving supplied to be equal to the quantity of saving (or investment)demanded is an example of the:

Accepted Answer

A) scarcity principle. 
B) principle of comparative advantage. 
C) equilibrium principle. 
D) principle of increasing opportunity cost. 
A) scarcity principle. 
B) principle of comparative advantage. 
C) equilibrium principle. 
D) principle of increasing opportunity cost. C

Question 4

The costs of investment depend on the ________ and the ________.

Accepted Answer

A) marginal product of capital; relative price of the firm's output 
B) price of new capital goods; real interest rate 
C) relative price of the firm's output; real interest rate 
D) taxes levied on the revenue generated; relative price of the firm's output 
A) marginal product of capital; relative price of the firm's output 
B) price of new capital goods; real interest rate 
C) relative price of the firm's output; real interest rate 
D) taxes levied on the revenue generated; relative price of the firm's output

Question 5

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals:

Accepted Answer

A) C + I + G - T. 
B) Y - T - C. 
C) Y -T - G. 
D) Y - C - I. 
A) C + I + G - T. 
B) Y - T - C. 
C) Y -T - G. 
D) Y - C - I.

Question 6

The introduction of new technologies ________ the real interest rate and ________ the equilibrium quantity of national saving.

Accepted Answer

A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases 
A) increases; increases 
B) increases; decreases 
C) decreases; decreases 
D) decreases; increases

Question 7

Bequest saving is saving:

Accepted Answer

A) to meet long-term objectives, such as retirement, college attendance, or the purchase of a home. 
B) for protection against unexpected setbacks, such as the loss of a job or a medical emergency. 
C) for the purpose of leaving an inheritance. 
D) done in anticipation of sales or bargain in the future. 
A) to meet long-term objectives, such as retirement, college attendance, or the purchase of a home. 
B) for protection against unexpected setbacks, such as the loss of a job or a medical emergency. 
C) for the purpose of leaving an inheritance. 
D) done in anticipation of sales or bargain in the future.

Question 8

Joe's Taco Hut can purchase a delivery truck for $20,000 and Joe estimates it will generate a net income (after taxes, maintenance and operating costs)of $2,000 per year. He has no other opportunities. He should:

Accepted Answer

A) purchase the truck only if the real interest rate is less than 2 percent. 
B) not purchase the truck if the real interest rate is greater than 2 percent. 
C) purchase the truck if the real interest rate is greater than 10 percent. 
D) purchase the truck if the real interest rate is less than 10 percent. 
A) purchase the truck only if the real interest rate is less than 2 percent. 
B) not purchase the truck if the real interest rate is greater than 2 percent. 
C) purchase the truck if the real interest rate is greater than 10 percent. 
D) purchase the truck if the real interest rate is less than 10 percent.

Question 9

Investment is a(n)________ that changes the ________ of capital.

Accepted Answer

A) flow; stock 
B) stock; flow 
C) asset; liability 
D) liability; asset 
A) flow; stock 
B) stock; flow 
C) asset; liability 
D) liability; asset

Question 10

At the household level, higher saving rates lead to ________ and greater economic security.

Accepted Answer

A) greater current consumption 
B) greater wealth 
C) less wealth 
D) less current income 
A) greater current consumption 
B) greater wealth 
C) less wealth 
D) less current income

Question 11

Firms will invest in new equipment whenever:

Accepted Answer

A) the expected cost of the equipment exceeds the expected benefit. 
B) the expected cost of the equipment is less than the expected benefit. 
C) the expected cost of the equipment is greater than the value of the marginal product of the equipment. 
D) public saving is greater than private saving. 
A) the expected cost of the equipment exceeds the expected benefit. 
B) the expected cost of the equipment is less than the expected benefit. 
C) the expected cost of the equipment is greater than the value of the marginal product of the equipment. 
D) public saving is greater than private saving.

Question 12

Jordan has the following assets and liabilities: $$\begin{array} { l | r } 
\hline \text { Tuo cars } & \$ 10,000 \
\text { House } & \$ 200,000 \
\text { Mortgage } & \$ 100,000 \
\hline \text { Cash } & \$ 1,000 \
\text { Car loars } & \$ 3,000 \
\hline \text { Checkire accourtbalarce } & \$ 2,000 \
\text { Credit card balarce } & \$ 1,000
\end{array}$$  
Suppose that Jordan wins $100,000 in the lottery. If he uses that money to pay off his mortgage, his wealth would ________; if he puts that money in his checking account, his wealth would ________;

Accepted Answer

A) increase to $209,000; not change 
B) not change; increase to $207,000 
C) increase to $209,000; increase to $209,000 
D) increase to $207,000; not change 
A) increase to $209,000; not change 
B) not change; increase to $207,000 
C) increase to $209,000; increase to $209,000 
D) increase to $207,000; not change

Question 13

Wealth equals:

Accepted Answer

A) current income minus spending on current needs. 
B) assets minus liabilities. 
C) saving minus investment. 
D) investment minus saving. 
A) current income minus spending on current needs. 
B) assets minus liabilities. 
C) saving minus investment. 
D) investment minus saving.

Question 14

Current income minus spending on current needs equals:

Accepted Answer

A) saving. 
B) wealth. 
C) transfers. 
D) investment. 
A) saving. 
B) wealth. 
C) transfers. 
D) investment.

Question 15

Steve uses $300 from his paycheck to pay off his credit card balance. Based on this information:

Accepted Answer

A) Steve's saving has increased by $300. 
B) Steve's saving has decreased by $300. 
C) Steve's wealth is unchanged. 
D) Steve has a capital loss of $300. 
A) Steve's saving has increased by $300. 
B) Steve's saving has decreased by $300. 
C) Steve's wealth is unchanged. 
D) Steve has a capital loss of $300.

Question 16

The Hatfields and the McCoys both earn $50,000 per year in real terms in the labor market, and both families are able to earn a 25 percent real interest rate on their savings. Assume that all interest is paid out as income in the following year. In the year 2010, both families began to save. The Hatfields saved 8 percent of their income each year; the McCoys saved 10 percent. In 2010, the Hatfields consumed ________ more than the McCoys; in 2011, the Hatfields consumed ________ than the McCoys.

Accepted Answer

A) $1,000; about $800 more 
B) $2,000; about $250 more 
C) $1,000; about $800 less 
D) $2,000; about $250 less 
A) $1,000; about $800 more 
B) $2,000; about $250 more 
C) $1,000; about $800 less 
D) $2,000; about $250 less

Question 17

Suppose the following information describes the economy: $$\begin{array} { l | r } 
\hline \text { Consuruption } & 8,000 \
\hline \text { Irvestruent } & 1,000 \
\hline \text { Goverument purchases } & 1,000 \
\hline \text { Net exports } & \mathbf { 0 } \
\hline \text { Goverment trarsfers ard interest paymerits } & 500 \
\hline \text { Goverment tax collections } & 1700
\end{array}$$  
Private saving equals ________; public saving equals ________; national saving equals ________.

Accepted Answer

A) 800; 200; 600 
B) 800; 200; 1,000 
C) 1,000; 800; 1,000 
D) 1,500; 700; 2,700 
A) 800; 200; 600 
B) 800; 200; 1,000 
C) 1,000; 800; 1,000 
D) 1,500; 700; 2,700

Question 18

Assets are:

Accepted Answer

A) current income minus spending on current needs. 
B) stocks, bonds, and credit card balances. 
C) saving minus investment. 
D) anything of value one owns. 
A) current income minus spending on current needs. 
B) stocks, bonds, and credit card balances. 
C) saving minus investment. 
D) anything of value one owns.

Question 19

The Hatfields and the McCoys both earn $50,000 per year in real terms in the labor market, and both families are able to earn a 5 percent real interest rate on their savings. In the year 2010, both families began to save. The Hatfields saved 8 percent of their income each year; the McCoys saved 10 percent. In 2010, the Hatfields consumed ________ more than the McCoys; in 2011, the Hatfields consumed ________ than the McCoys.

Accepted Answer

A) $1,000; about $960 less 
B) $2,000; about $960 more 
C) $1,000; about $960 more 
D) $2,000; about $960 less 
A) $1,000; about $960 less 
B) $2,000; about $960 more 
C) $1,000; about $960 more 
D) $2,000; about $960 less

Question 20

Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to saving, then the real interest rate will ________ and the equilibrium quantity of saving and investment will ________.

Accepted Answer

A) increase; increase 
B) increase; not change 
C) increase; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; not change 
C) increase; decrease 
D) decrease; increase

Exam 21: Saving and Capital Formation

Crowding out is the tendency for increased government deficits to:

A measure defined at a point in time is called a(n)________ variable.

A real interest rate that causes the quantity of saving supplied to be equal to the quantity of saving (or investment)demanded is an example of the:

The costs of investment depend on the ________ and the ________.

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals:

The introduction of new technologies ________ the real interest rate and ________ the equilibrium quantity of national saving.

Bequest saving is saving:

Joe's Taco Hut can purchase a delivery truck for $20,000 and Joe estimates it will generate a net income (after taxes, maintenance and operating costs)of $2,000 per year. He has no other opportunities. He should:

Investment is a(n)________ that changes the ________ of capital.

At the household level, higher saving rates lead to ________ and greater economic security.

Firms will invest in new equipment whenever:

Wealth equals:

Current income minus spending on current needs equals:

Steve uses $300 from his paycheck to pay off his credit card balance. Based on this information:

Assets are:

Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to saving, then the real interest rate will ________ and the equilibrium quantity of saving and investment will ________.

Thinking Like an Economist

Comparative Advantage

Supply and Demand

Elasticity

Demand

Perfectly Competitive Supply

Efficiency, Exchange, and the Invisible Hand in Action

Monopoly, Oligopoly, and Monopolistic Competition

Games and Strategic Behavior

An Introduction to Behavioral Economics

Externalities, Property Rights, and the Environment

The Economics of Information

Labor Markets, Poverty, and Income Distribution

Public Goods and Tax Policy

International Trade and Trade Policy

Macroeconomics: The Birds Eye View of the Economy

Measuring Economic Activity: GDP and Unemployment

Measuring the Price Level and Inflation

Economic Growth, Productivity, and Living Standards

The Labor Market: Workers, Wages, and Unemployment

Money Prices and the Federal Reserve

Financial Markets and International Capital Flows

Short-Term Economic Fluctuations: An Introduction

Spending and Output in the Short Run

Stabilizing the Economy: The Role of the Fed

Aggregate Demand, Aggregate Supply, and Inflation

Exchange Rates and the Open Economy

Filters

The costs of investment depend on the and the .

The introduction of new technologies the real interest rate and the equilibrium quantity of national saving.

Investment is a(n) that changes the of capital.

Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to saving, then the real interest rate will and the equilibrium quantity of saving and investment will .