Exam 13: Saving Investment and the Financial System: Part B

The majority of economists believe that policies that reduce the saving rate will reduce long-run living standards.

Generally,if people begin to expect a company to have higher future profits,the price of the company's stock will begin to decrease.

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

The term crowding out refers to decreases in the interest rate caused by government budget surpluses.

In a closed economy,each unit of output is either consumed by households or invested.

If the tax rate fell,holding municipal bonds would be less desirable so the interest rates on them would fall.

A government may use deficit financing to smooth tax rates over time.

Anything other than a change in the interest rate that decreases national saving shifts the supply of loanable funds to the left.

On a graph that depicts the market for loanable funds,the nominal interest rate is measured along the vertical axis.

An increase in the budget deficit shifts the demand for loanable funds to the right.

If,for an imaginary closed economy,investment amounts to $10,000 and the government is running a $2,500 deficit,then private saving must amount to $12,500.

Joan uses some of her income to buy mutual fund shares.A macroeconomist refers to Joan's purchase as investment.

In a closed economy,investment must be equal to private saving.

Financial crises seldom involve economic downturns.

When the U.S.government is in debt during a given year,it follows that its budget is in deficit for that year.

In a closed economy,if taxes fall and consumption rises,then private saving must fall.

Alberta buys a paint sprayer and a lift for her car customizing shop.A macroeconomist would refer to these purchases as investment.

When economists refer to investment,they mean the purchasing of stocks and bonds and other types of saving.

Financial markets are important for bringing equilibrium to the loanable funds market,but do not affect the efficient allocation of scarce resources in the long-run.

Lenders sell bonds and borrowers buy them.