Question 1

In a closed economy taxes are $750 billion, government transfers are $400 billion, government expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving and national saving?

Accepted Answer

The answer of In a closed economy taxes are $750...

Question 2

Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the

Accepted Answer

A) supply of existing shares of the stock and the price will both rise. 
B) supply of existing shares of the stock and the price will both fall. 
C) demand for existing shares of the stock and the price will both rise. 
D) demand for existing shares of the stock and the price will both fall.

Question 3

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

A) an investor can avoid investment charges and fees. 
B) they give ordinary people access to loanable funds for investing. 
C) they usually outperform stock market indexes. 
D) they give ordinary people access to the skills of professional money managers.

Question 4

Scenario 26-1. Assume the following information for an imaginary, closed economy.
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 $$\begin{array} { | l | l | } 
\hline \text { GDP } & \$ 170,000 \
\hline \text { Taxes } & \$ 25,000 \
\hline \text { Government Purchases } & \$ 32,000 \
\hline \text { National Saving } & \$ 19,000 \
\hline
\end{array}$$
-Refer to Scenario 26-1. For this economy, investment amounts to

Accepted Answer

A) $7,000. 
B) $25,000. 
C) $32,000. 
D) $19,000.

Question 5

The sale of bonds

Accepted Answer

A) and stocks to raise money is called debt finance. 
B) and stocks to raise money is called equity finance. 
C) to raise money is debt finance and the sale of stocks to raise funds is equity finance. 
D) to raise money is equity finance and the sale of stocks to raise funds is debt finance.

Question 6

Which government policy raises the interest rate and raises investment spending?

Accepted Answer

The answer of Which government policy raises the interest rate...

Question 7

Suppose that in a closed economy GDP is equal to $35,000, consumption equal to $16,000, government purchases equal $4,500, and taxes equal $8,000. What are private saving, public saving, and national saving?

Accepted Answer

A) $3,500, $11,000, and $14,500, respectively 
B) $19,000, $27,000, and $12,500, respectively 
C) $11,000, $3,500, and $14,500, respectively 
D) $27,000, $19,000, and $12,500, respectively

Question 8

The economy's two most important financial markets are

Accepted Answer

A) the investment market and the saving market. 
B) the bond market and the stock market. 
C) banks and the stock market. 
D) financial markets and financial institutions.

Question 9

If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds? What does this imply would happen to interest rates?

Accepted Answer

The answer of If at some interest rate desired investment...

Question 10

Consider a closed economy. What remains after paying for consumption and government purchases is

Accepted Answer

A) national disposable income. 
B) national saving. 
C) public saving. 
D) private saving.

Question 11

Other things the same, as the maturity of a bond becomes longer, the bond will pay

Accepted Answer

A) a lower interest rate because it has less risk. 
B) a lower interest rate because it has more risk. 
C) a higher interest rate because it has more risk. 
D) the same interest rate, because there is no relationship between term and risk.

Question 12

What would happen, all else equal, in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A) There would be an increase in the equilibrium quantity of loanable funds. 
B) There would be a reduction in the equilibrium quantity of loanable funds. 
C) There would be no change in the equilibrium quantity of loanable funds. 
D) The change in loanable funds is uncertain.

Question 13

National saving is

Accepted Answer

A) the total income in the economy that remains after paying for consumption. 
B) the total income in the economy that remains after paying for consumption and government purchases. 
C) always greater than investment for a closed economy. 
D) equal to private saving minus public saving.

Question 14

Suppose a closed economy had public saving of −$1 trillion and private saving of $17 trillion. What are national saving and investment for this country?

Accepted Answer

A) $16 trillion, $16 trillion 
B) $16 trillion, $18 trillion 
C) $18 trillion, $16 trillion 
D) $18 trillion, $18 trillion

Question 15

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, index 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 16

The interest rate will _____ and the quantity of loanable funds invested will _____ when the government decreases the budget deficit.

Accepted Answer

The answer of The interest rate will _____ and the...

Question 17

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

The answer of Draw and label a graph showing equilibrium...

Question 18

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 answer of Suppose there is a shortage in the...

Question 19

Taking out a mortgage to buy a condo, buying a mutual fund, and building a new factory are all examples of investment.

Accepted Answer

A) True 
 B)False

Question 20

Table 26-1. The following table presents information about a closed economy whose market for loanable funds is in equilibrium.
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 $$\begin{array} { | l | l | } 
\hline \text { GDP } & \$ 8.3 \text { trillion } \
\hline \text { Consumer Spending } & \$ 5.1 \text { trillion } \
\hline \text { Taxes Minus Transfers } & \$ 1.9 \text { trillion } \
\hline \text { Government Purchases } & \$ 0.5 \text { trillion } \
\hline
\end{array}$$ ​
-Refer to Table 26-1. The quantity of loanable funds demanded is

Accepted Answer

A) $2.7 trillion. 
B) $1.3 trillion. 
C) $3.2 trillion. 
D) $6.4 trillion.

Exam 26: Saving, Investment, and the Financial System