Question 1

Which of the following lists correctly identifies the four expenditure categories of GDP?

Accepted Answer

A)  consumption, government purchases, investment, net-exports 
B)  consumption, investment, depreciation, net-exports 
C)  consumption, saving, investment, depreciation, 
D)  consumption, government purchases, investment, savings 
A)  consumption, government purchases, investment, net-exports 
B)  consumption, investment, depreciation, net-exports 
C)  consumption, saving, investment, depreciation, 
D)  consumption, government purchases, investment, savings

Question 2

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

Accepted Answer

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

Question 3

If a firm wants to borrow it can

Accepted Answer

A)  supply bonds by selling them. 
B)  supply bonds by buying them. 
C)  demand bonds by selling them. 
D)  demand bonds by buying them. 
A)  supply bonds by selling them. 
B)  supply bonds by buying them. 
C)  demand bonds by selling them. 
D)  demand bonds by buying them.

Question 4

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Accepted Answer

A reduction in transfer paymen

Question 5

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Accepted Answer

The interest rate is below its

Question 6

At the broadest level, the financial system moves the economy's scarce resources from

Accepted Answer

A)  the rich to the poor. 
B)  financial institutions to business firms and government. 
C)  households to financial institutions. 
D)  savers to borrowers. 
A)  the rich to the poor. 
B)  financial institutions to business firms and government. 
C)  households to financial institutions. 
D)  savers to borrowers.

Question 7

Which of the following statements is correct?

Accepted Answer

A)  A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B)  On average, indexed funds outperform managed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a store of value. 
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers. 
A)  A large, well-known corporation such as Proctor and Gamble would generally use financial intermediation to finance expansion of its factories. 
B)  On average, indexed funds outperform managed funds. 
C)  Unlike corporate bonds and stocks, checking accounts are a store of value. 
D)  Financial intermediaries are institutions through which savers can directly provide funds to borrowers.

Question 8

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Accepted Answer

A)  only Jim's 
B)  only ABC Corporation's 
C)  Jim's and ABC Corporation's 
D)  neither Jim's nor ABC Corporation's 
A)  only Jim's 
B)  only ABC Corporation's 
C)  Jim's and ABC Corporation's 
D)  neither Jim's nor ABC Corporation's

Question 9

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

Accepted Answer

A)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C)  the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D)  the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise. 
A)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B)  both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C)  the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D)  the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.

Question 10

If the budget deficit increases then

Accepted Answer

A)  saving and the interest rate rise 
B)  saving rises and the interest rate falls 
C)  saving falls and the interest rate rises 
D)  saving and the interest rate falls 
A)  saving and the interest rate rise 
B)  saving rises and the interest rate falls 
C)  saving falls and the interest rate rises 
D)  saving and the interest rate falls

Question 11

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)  The term junk bonds refers 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)  The term junk bonds refers to bonds that have been resold many times. 
D)  None of the above is correct.

Question 12

Figure 26-4. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars.  
-Refer to Figure 26-4. Regard the position of the Supply curve as fixed, as on the graph. If the real interest rate is 4 percent, the inflation rate is 2 percent, and the market for loanable funds is in equilibrium, then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the left of D1. 
A)  D1. 
B)  D2. 
C)  between D1 and D2. 
D)  to the left of D1.

Question 13

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 14

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Accepted Answer

A)  saving and the interest rate 
B)  saving but not the interest rate 
C)  the interest rate but not saving 
D)  neither saving nor the interest rate 
A)  saving and the interest rate 
B)  saving but not the interest rate 
C)  the interest rate but not saving 
D)  neither saving nor the interest rate

Question 15

Which of the following statements is not correct?

Accepted Answer

A)  If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose. 
A)  If GDP is rising faster than debt, the government is, in some sense, living within its means. 
B)  The ratio of debt to GDP in the United States has always been less than one. 
C)  Debts during wars may distribute the burden of fighting the war more evenly across generations. 
D)  During times of peace in the United States, the ratio of debt to GDP sometimes rose.

Question 16

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

Accepted Answer

A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward. 
A)  The demand for loanable funds shifted rightward. 
B)  The demand for loanable funds shifted leftward. 
C)  The supply of loanable funds shifted rightward. 
D)  The supply of loanable funds shifted leftward.

Question 17

On which of these bonds is the prospect of default least likely?

Accepted Answer

A)  a junk bond 
B)  a bond issued by the state of Arizona 
C)  a bond issued by the federal government 
D)  a bond issued by General Electric Corporation 
A)  a junk bond 
B)  a bond issued by the state of Arizona 
C)  a bond issued by the federal government 
D)  a bond issued by General Electric Corporation

Question 18

Which of the following is correct?

Accepted Answer

A)  Some bonds have terms as short as a few months. 
B)  Because they are so risky, junk bonds pay a low rate of interest. 
C)  Corporations buy bonds to raise funds. 
D)  All of the above are correct. 
A)  Some bonds have terms as short as a few months. 
B)  Because they are so risky, junk bonds pay a low rate of interest. 
C)  Corporations buy bonds to raise funds. 
D)  All of the above are correct.

Question 19

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Accepted Answer

A)  Consumption and private saving are equal. 
B)  The economy's government is running neither a surplus nor a deficit. 
C)  Private saving and public saving are both zero. 
D)  No restriction is necessary; private saving and investment are equal for all closed economies. 
A)  Consumption and private saving are equal. 
B)  The economy's government is running neither a surplus nor a deficit. 
C)  Private saving and public saving are both zero. 
D)  No restriction is necessary; private saving and investment are equal for all closed economies.

Question 20

Public saving is the difference between and .

Accepted Answer

tax revenue, governm

Exam 18: Saving, Investment, and the Financial System

Which of the following lists correctly identifies the four expenditure categories of GDP?

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland,

If a firm wants to borrow it can

If the government reduces transfer payments, what happens to the budget deficit? What curve does this change in the market for loanable funds, which direction does it shift, and what happens to the equilibrium interest rate?

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

At the broadest level, the financial system moves the economy's scarce resources from

Which of the following statements is correct?

Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery. Whose spending would be an act of investment in the language of macroeconomics?

Suppose government expenditures on goods and services and net taxes both decrease, and expenditures fall by more than net taxes. The effects of these changes on the budget deficit cause

If the budget deficit increases then

Which of the following is correct?

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

If the government instituted an investment tax credit, then which of the following would be higher in equilibrium?

Which of the following statements is not correct?

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

On which of these bonds is the prospect of default least likely?

Which of the following is correct?

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Public saving is the difference between and .

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 Costs of Production

Firms in Competitive Markets

Monopoly

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

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

Filters