Question 1

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Accepted Answer

A)  private saving = $10,000 and GDP = $55,000. 
B)  private saving = $10,000 and GDP = $63,000. 
C)  private saving = $12,000 and GDP = $67,000. 
D)  private saving = $12,000 and GDP = $69,000. 
A)  private saving = $10,000 and GDP = $55,000. 
B)  private saving = $10,000 and GDP = $63,000. 
C)  private saving = $12,000 and GDP = $67,000. 
D)  private saving = $12,000 and GDP = $69,000.

Question 2

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 3

In the small closed economy of San Lorena, the currency is the denar. Statistics for last year show that private saving was 60 billion denars, taxes were 80 billion denars, government purchases of goods and services were 70 billion denars, there were no transfer payments by the government, and GDP was 400 billion denars. What were consumption and investment in San Lorena?

Accepted Answer

A)  270 billion denars, 50 billion denars 
B)  250 billion denars, 60 billion denars 
C)  260 billion denars, 70 billion denars 
D)  None of the above is correct. 
A)  270 billion denars, 50 billion denars 
B)  250 billion denars, 60 billion denars 
C)  260 billion denars, 70 billion denars 
D)  None of the above is correct.

Question 4

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Accepted Answer

A)  public and national saving would rise 
B)  public and national saving would fall 
C)  public saving would rise and national saving would fall 
D)  public saving would fall and national saving would rise 
A)  public and national saving would rise 
B)  public and national saving would fall 
C)  public saving would rise and national saving would fall 
D)  public saving would fall and national saving would rise

Question 5

Which of the following statements is correct?

Accepted Answer

A)  As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate. 
B)  The interest rate that is usually reported is the nominal interest rate. 
C)  If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases. 
D)  All of the above are correct. 
A)  As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate. 
B)  The interest rate that is usually reported is the nominal interest rate. 
C)  If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases. 
D)  All of the above are correct.

Question 6

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

Accepted Answer

A)  $2.05. 
B)  $5.00. 
C)  $80.00 
D)  $50.00. 
A)  $2.05. 
B)  $5.00. 
C)  $80.00 
D)  $50.00.

Question 7

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 8

The slope of the demand for loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment. 
B)  negative relation between the real interest rate and investment. 
C)  positive relation between the real interest rate and saving. 
D)  negative relation between the real interest rate and saving. 
A)  positive relation between the real interest rate and investment. 
B)  negative relation between the real interest rate and investment. 
C)  positive relation between the real interest rate and saving. 
D)  negative relation between the real interest rate and saving.

Question 9

A policy that induces people to save more shifts

Accepted Answer

A)  the supply of loanable funds and raises interest rates. 
B)  the supply of loanable funds and reduces interest rates. 
C)  the demand for loanable funds and raises interest rates. 
D)  the demand for loanable funds and reduces interest rates. 
A)  the supply of loanable funds and raises interest rates. 
B)  the supply of loanable funds and reduces interest rates. 
C)  the demand for loanable funds and raises interest rates. 
D)  the demand for loanable funds and reduces interest rates.

Question 10

The price of a stock will rise if

Accepted Answer

A)  the managers of a stock exchange decide the price should be higher. 
B)  the demand for the stock rises. 
C)  the supply of the stock rises. 
D)  None of the above are correct. 
A)  the managers of a stock exchange decide the price should be higher. 
B)  the demand for the stock rises. 
C)  the supply of the stock rises. 
D)  None of the above are correct.

Question 11

Interest rates fall and investment falls. Which of the following could explain these changes?

Accepted Answer

A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct. 
A)  The government goes from a surplus to a deficit. 
B)  The government repeals an investment tax credit. 
C)  The government replaces a consumption tax with an income tax. 
D)  None of the above is correct.

Question 12

Which of the following is correct?

Accepted Answer

A)  In the national income accounts, investment and private saving refer to the same thing. 
B)  In a closed economy if national saving is greater than zero, then everyone must be saving. 
C)  The financial system channels funds from savers to borrowers. 
D)  People whose consumption exceeds their income are savers. 
A)  In the national income accounts, investment and private saving refer to the same thing. 
B)  In a closed economy if national saving is greater than zero, then everyone must be saving. 
C)  The financial system channels funds from savers to borrowers. 
D)  People whose consumption exceeds their income are savers.

Question 13

What is the main function of the financial system?

Accepted Answer

Matching s

Question 14

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

Accepted Answer

A) True 
 B)False

Question 15

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

Accepted Answer

A)  The government 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 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

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

Accepted Answer

The supply of loanable funds w

Question 17

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.  
-Refer to Figure 26-3. Which of the following movements would be consistent with the government budget going from deficit to surplus and the simultaneous enactment of an investment tax credit?

Accepted Answer

A)  a movement from Point A to Point C 
B)  a movement from Point B to Point A 
C)  a movement from Point B to Point F 
D)  a movement from Point C to Point B 
A)  a movement from Point A to Point C 
B)  a movement from Point B to Point A 
C)  a movement from Point B to Point F 
D)  a movement from Point C to Point B

Question 18

The Dow Jones Industrial Average is now based on the prices of the stocks of

Accepted Answer

A)  30 major U.S. corporations. 
B)  100 major U.S. corporations. 
C)  500 representative U.S. corporations. 
D)  1,000 representative U.S. corporations. 
A)  30 major U.S. corporations. 
B)  100 major U.S. corporations. 
C)  500 representative U.S. corporations. 
D)  1,000 representative U.S. corporations.

Question 19

The two most important financial markets are the _____ market and the _____ market.

Accepted Answer

bond, stoc

Question 20

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

Accepted Answer

A)  Private saving is equal to government expenditures. 
B)  Public saving is equal to investment. 
C)  After paying their taxes and paying for their consumption, households have nothing left. 
D)  The government's tax revenue is equal to its expenditures. 
A)  Private saving is equal to government expenditures. 
B)  Public saving is equal to investment. 
C)  After paying their taxes and paying for their consumption, households have nothing left. 
D)  The government's tax revenue is equal to its expenditures.

Exam 18: Saving, Investment, and the Financial System

For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then

Which of the following is not correct?

In a closed economy, if Y and T remained the same, but G rose and C fell but by less than the rise in G, what would happen to public and national saving?

Which of the following statements is correct?

A particular stock pays an annual dividend of $2 per share and the annual dividend yield is 2.5 percent. The price of a share of this stock is

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

The slope of the demand for loanable funds curve represents the

A policy that induces people to save more shifts

The price of a stock will rise if

Interest rates fall and investment falls. Which of the following could explain these changes?

Which of the following is correct?

What is the main function of the financial system?

The conventions of national income accounting imply that saving and investment are equal for the economy as a whole and for individual households and firms.

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

Congress and the President allow people to make greater contributions to tax-deferred savings accounts. Which curve in the market for loanable funds would shift, which direction would it shift, what would happen to the interest rate, and what would happen to investment spending?

The Dow Jones Industrial Average is now based on the prices of the stocks of

The two most important financial markets are the _____ market and the _____ market.

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

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

The two most important financial markets are the _ market and the _ market.