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.

The supply of loanable funds is upward-sloping because:

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

If the nominal interest rate is 8 per cent and the rate of inflation is 3 per cent, then the real interest rate is:

The GDP of a closed economy is the sum of consumption, investment, government purchases and imports.

The type of bond that never matures is called:

The yield curve is a graph of the interest rate on bonds of different terms, with the term shown on the horizontal axis and the interest shown on the vertical axis. Based on the discussion in chapter 10, what slope would you expect the yield curve to have?

An investment tax credit:

An excess of tax revenue over government spending is called a budget deficit.

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

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

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

If the real interest rate and the nominal interest rate was 3 per cent in 2005, then the inflation rate in 2005 would be:

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

Import receipts are not an addition to a country's GDP.

A budget deficit:

When the $700 billion bailout occurred in 2008 did this send a dangerous signal to the banks?

Private saving is:

A price-earnings ratio is:

Discuss whether the Rudd stimulus package to shield the economy was successful.