Question 1

Other things the same,a government budget deficit

Accepted Answer

A)  reduces public saving,but not national saving.. 
B)  reduces national saving,but not public saving. 
C)  reduces both public and national saving. 
D)  reduces neither public saving nor national saving. 
A)  reduces public saving,but not national saving.. 
B)  reduces national saving,but not public saving. 
C)  reduces both public and national saving. 
D)  reduces neither public saving nor national saving.

Question 2

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500,consumption equals 7,000,and government purchases equal 3,000.What are private saving and public saving?

Accepted Answer

A)  1,500 and -500,respectively 
B)  1,500 and 500,respectively 
C)  1,000 and -500,respectively 
D)  1,000 and 500,respectively 
A)  1,500 and -500,respectively 
B)  1,500 and 500,respectively 
C)  1,000 and -500,respectively 
D)  1,000 and 500,respectively

Question 3

Suppose the city of Springfield has a high credit rating,and so when Springfield borrows funds by selling bonds,

Accepted Answer

A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply. 
A)  the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply. 
B)  the city's high credit rating and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. 
C)  the city's high credit rating contributes to a lower interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. 
D)  the city's high credit rating contributes to a higher interest rate than would otherwise apply,while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

Question 4

The country of Hykenia does not trade with any other country.Its GDP is $20 billion.Its government collects $4 billion in taxes and pays out $3 billion to households in the form of transfer payments.Consumption equals $15 billion and investment equals $2 billion.What is public saving in Hykenia,and what is the value of the goods and services purchased by the government of Hykenia?

Accepted Answer

A)  -$2 billion and $3 billion 
B)  $1 billion and $3 billion 
C)  -$1 billion and $4 billion 
D)  There is not enough information to answer the question. 
A)  -$2 billion and $3 billion 
B)  $1 billion and $3 billion 
C)  -$1 billion and $4 billion 
D)  There is not enough information to answer the question.

Question 5

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit.What would happen to the interest rate?

Accepted Answer

A)  It would decrease. 
B)  It would increase. 
C)  It would stay the same. 
D)  It might do any of the above. 
A)  It would decrease. 
B)  It would increase. 
C)  It would stay the same. 
D)  It might do any of the above.

Question 6

If,for an imaginary closed economy,investment amounts to $12,000 and the government is running a $2,000 deficit,then private saving must amount to $10,000.

Accepted Answer

A) True 
 B)False

Question 7

If national saving in a closed economy is greater than zero,which of the following must be true?

Accepted Answer

A)  Either public saving or private saving must be greater than zero. 
B)  Investment is positive. 
C)  Y - C - G > 0 
D)  All of the above are correct. 
A)  Either public saving or private saving must be greater than zero. 
B)  Investment is positive. 
C)  Y - C - G > 0 
D)  All of the above are correct.

Question 8

Y = C + I + G + NX is an identity because

Accepted Answer

A)  each symbol identifies a macroeconomic variable. 
B)  the right-hand and left-hand sides are equal when an equilibrium is reached. 
C)  the equality holds due to the way the variables are defined. 
D)  None of the above is correct. 
A)  each symbol identifies a macroeconomic variable. 
B)  the right-hand and left-hand sides are equal when an equilibrium is reached. 
C)  the equality holds due to the way the variables are defined. 
D)  None of the above is correct.

Question 9

Stock represents

Accepted Answer

A)  a claim to a share of the profits of a firm. 
B)  ownership in a firm. 
C)  equity finance. 
D)  All of the above are correct 
A)  a claim to a share of the profits of a firm. 
B)  ownership in a firm. 
C)  equity finance. 
D)  All of the above are correct

Question 10

Net exports must equal zero for any economy

Accepted Answer

A)  that is closed. 
B)  for which Y = C + I + G. 
C)  for which S = Y - C - G. 
D)  All of the above are correct. 
A)  that is closed. 
B)  for which Y = C + I + G. 
C)  for which S = Y - C - G. 
D)  All of the above are correct.

Question 11

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed.The result would be that the interest rate

Accepted Answer

A)  and investment both would increase. 
B)  and investment both would decrease. 
C)  would increase and investment would decrease. 
D)  would decrease and investment would increase. 
A)  and investment both would increase. 
B)  and investment both would decrease. 
C)  would increase and investment would decrease. 
D)  would decrease and investment would increase.

Question 12

Which of the following is not correct?

Accepted Answer

A)  By saving a larger portion of its GDP,a country can raise its output per worker. 
B)  Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date. 
C)  Financial intermediaries are the only type of financial institution. 
D)  The financial system helps match people's saving with other people's borrowing. 
A)  By saving a larger portion of its GDP,a country can raise its output per worker. 
B)  Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date. 
C)  Financial intermediaries are the only type of financial institution. 
D)  The financial system helps match people's saving with other people's borrowing.

Question 13

Suppose the government ran a budget surplus in 2008 and a larger surplus in 2009.The loanable funds model would predict that,as a result of the increase in the surplus,

Accepted Answer

A)  both the government debt and interest rates increased between 2008 and 2009. 
B)  both the government debt and interest rates decreased between 2008 and 2009. 
C)  the government debt increased and interest rates decreased between 2008 and 2009. 
D)  the government debt decreased and interest rates increased between 2008 and 2009. 
A)  both the government debt and interest rates increased between 2008 and 2009. 
B)  both the government debt and interest rates decreased between 2008 and 2009. 
C)  the government debt increased and interest rates decreased between 2008 and 2009. 
D)  the government debt decreased and interest rates increased between 2008 and 2009.

Question 14

Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a

Accepted Answer

A)  saver or as a supplier of funds. 
B)  saver or as a demander of funds. 
C)  borrower or as a supplier of funds. 
D)  borrower or as a demander of funds. 
A)  saver or as a supplier of funds. 
B)  saver or as a demander of funds. 
C)  borrower or as a supplier of funds. 
D)  borrower or as a demander of funds.

Question 15

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Accepted Answer

A)  The government budget went from surplus to deficit. 
B)  The government instituted an investment tax credit. 
C)  The government reduced the tax rate on savings. 
D)  None of the above is correct. 
A)  The government budget went from surplus to deficit. 
B)  The government instituted an investment tax credit. 
C)  The government reduced the tax rate on savings. 
D)  None of the above is correct.

Question 16

Which of the following is not always correct for a closed economy?

Accepted Answer

A)  National saving equals private saving plus public saving. 
B)  Net exports equal zero. 
C)  Real GDP measures both income and expenditures. 
D)  Private saving equals investment. 
A)  National saving equals private saving plus public saving. 
B)  Net exports equal zero. 
C)  Real GDP measures both income and expenditures. 
D)  Private saving equals investment.

Question 17

A budget surplus is created if

Accepted Answer

A)  the government sells more bonds than it buys back. 
B)  the government spends more than it receives in tax revenue. 
C)  private saving is greater than zero. 
D)  None of the above is correct. 
A)  the government sells more bonds than it buys back. 
B)  the government spends more than it receives in tax revenue. 
C)  private saving is greater than zero. 
D)  None of the above is correct.

Question 18

A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

Accepted Answer

A)  in our model of the loanable funds market,we define "loanable funds" as the flow of resources available to fund private investment. 
B)  in our model of the loanable funds market,we define "loanable funds" as the flow of resources available from private saving. 
C)  markets for government debt are fundamentally different from markets for private debt. 
D)  of our assumption that the economy is closed. 
A)  in our model of the loanable funds market,we define "loanable funds" as the flow of resources available to fund private investment. 
B)  in our model of the loanable funds market,we define "loanable funds" as the flow of resources available from private saving. 
C)  markets for government debt are fundamentally different from markets for private debt. 
D)  of our assumption that the economy is closed.

Question 19

When the government runs a budget deficit,

Accepted Answer

A)  interest rates are lower than they would be if the budget were balanced. 
B)  national saving is higher than it would be if the budget were balanced. 
C)  investment is lower than it would be if the budget were balanced. 
D)  All of the above are correct. 
A)  interest rates are lower than they would be if the budget were balanced. 
B)  national saving is higher than it would be if the budget were balanced. 
C)  investment is lower than it would be if the budget were balanced. 
D)  All of the above are correct.

Question 20

The country of Growpaw does not trade with any other country.Its GDP is $17 billion.Its government purchases $4 billion worth of goods and services each year,collects $6 billion in taxes,and provides $1 billion in transfer payments to households.Private saving in Growpaw is $4 billion.For Growpaw,

Accepted Answer

A)  investment is $6 billion and consumption is $9 billion. 
B)  investment is $6 billion and consumption is $8 billion. 
C)  investment is $5 billion and consumption is $8 billion. 
D)  investment is $5 billion and consumption is $7 billion. 
A)  investment is $6 billion and consumption is $9 billion. 
B)  investment is $6 billion and consumption is $8 billion. 
C)  investment is $5 billion and consumption is $8 billion. 
D)  investment is $5 billion and consumption is $7 billion.

Exam 26: Saving, investment, and the Financial System

Other things the same,a government budget deficit

Suppose that in a closed economy GDP is equal to 11,000,taxes are equal to 2,500,consumption equals 7,000,and government purchases equal 3,000.What are private saving and public saving?

Suppose the city of Springfield has a high credit rating,and so when Springfield borrows funds by selling bonds,

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit.What would happen to the interest rate?

If,for an imaginary closed economy,investment amounts to $12,000 and the government is running a $2,000 deficit,then private saving must amount to $10,000.

If national saving in a closed economy is greater than zero,which of the following must be true?

Y = C + I + G + NX is an identity because

Stock represents

Net exports must equal zero for any economy

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed.The result would be that the interest rate

Which of the following is not correct?

Suppose the government ran a budget surplus in 2008 and a larger surplus in 2009.The loanable funds model would predict that,as a result of the increase in the surplus,

Alyssa is opening a bicycle shop,and her monthly expenditures to get the shop up and running exceed her monthly income.Alyssa is best described as a

Which of the following events could explain an increase in interest rates together with a decrease in investment?

Which of the following is not always correct for a closed economy?

A budget surplus is created if

A government budget deficit affects the supply of loanable funds,rather than the demand for loanable funds,because

When the government runs a budget deficit,

The country of Growpaw does not trade with any other country.Its GDP is $17 billion.Its government purchases $4 billion worth of goods and services each year,collects $6 billion in taxes,and provides $1 billion in transfer payments to households.Private saving in Growpaw is $4 billion.For Growpaw,

Ten Principles of 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

Oligopoly

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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