Question 1

If two households have the same disposable income in the current year,the household with the

Accepted Answer

A)  higher expected future income will consume a larger portion of its current income today. 
B)  lower expected future income will consume more today while it has the money. 
C)  lower expected future income will spend a larger portion of its current income on consumption today because it will increase its saving in the future. 
D)  none of the above

Question 2

In the loanable funds market,the supply comes from

Accepted Answer

A)  saving, the government budget surplus and international borrowing 
B)  only saving and the government budget surplus 
C)  only saving 
D)  only the government budget surplus and international borrowing

Question 3

National saving is defined as the amount of

Accepted Answer

A)  business saving. 
B)  household saving. 
C)  business saving and household saving. 
D)  private saving and government saving.

Question 4

-In the above figure,the demand for loanable funds curve is drawn for the average expected profit.If the real interest rate is constant at 6 percent and the expected profit rises,the amount of loanable funds demanded will be

Accepted Answer

A)  less than $450 billion. 
B)  $450 billion. 
C)  between $300 billion and $450 billion. 
D)  greater than $450 billion.

Question 5

According to the Ricardo-Barro effect,

Accepted Answer

A)  the government budget has no effect on the real interest rate. 
B)  a government budget deficit crowds out private investment. 
C)  financing government spending with taxes has a smaller effect on private investment than financing through government borrowing. 
D)  None of the above answers are correct.

Question 6

The table below shows data for the United States. $$\begin{array} { | c | c | c | } 
\hline & \begin{array} { c } 
\text { Nominal } \
\text { Interest Rate }
\end{array} & \text { Inflation Rate } \
\hline 2011 & 5.25 & 4 \
\hline 2012 & 5 & 2 \
\hline 2013 & 4.5 & 4.3 \
\hline
\end{array}$$
Between 2011 and 2012,the real interest rate ________ and caused a ________ the demand for loanable funds curve.

Accepted Answer

A)  increased; rightward shift 
B)  decreased; leftward 
C)  increased; movement upward along 
D)  decreased; downward along

Question 7

In 2010,the United States and foreign economies start to recover from the recession. U.S.firms increase their profit expectations.As a result,the demand for loanable funds curve shifts ________ and the real interest rate ________.

Accepted Answer

A)  leftward; decreases 
B)  rightward; decreases 
C)  leftward; increases 
D)  rightward; increases

Question 8

-In the above figure,new expectations of booming business conditions and a higher expected profit will

Accepted Answer

A)  shift the demand for loanable funds curve leftward. 
B)  shift the demand for loanable funds curve rightward. 
C)  have no effect on the demand for loanable funds curve. 
D)  make the demand for loanable funds curve become horizontal.

Question 9

Suppose Country A had net taxes of $30 million and government expenditures of $35 million. In addition,household saving in Country A totalled $5 million while consumption was $80 million. The government of Country A is running a budget ________ and national saving is ________ million.

Accepted Answer

A)  surplus; $5 
B)  deficit; -$5 
C)  deficit; $0 
D)  surplus; $25

Question 10

In the loanable funds market,an increase in wealth shifts the ________ loanable funds curve ________.

Accepted Answer

A)  supply of; rightward 
B)  supply of; leftward 
C)  demand for; rightward 
D)  demand for; leftward

Question 11

________ increases households' saving.

Accepted Answer

A)  A decrease in the real interest rate 
B)  A tax cut that increases disposable income 
C)  Higher expected future income 
D)  A stock market boom that increases the purchasing power of households' wealth

Question 12

According to the Ricardo-Barro effect,government deficits

Accepted Answer

A)  lead to a rise in the equilibrium real interest rate, crowding out investment. 
B)  lead to simultaneous increases in private saving and no effect on the equilibrium real interest rate and investment. 
C)  lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
D)  lead to a fall in the equilibrium real interest rate and a rise in investment.

Question 13

Investment is financed by which of the following?
I. Government spending
II. National saving
III. Borrowing from the rest of the world

Accepted Answer

A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  II and III only

Question 14

What are the factors that change the supply of saving and shift the supply of loanable funds curve?

Accepted Answer

The answer of What are the factors that change the...

Question 15

At the beginning of the year,Tom's Tubes had a capital stock of 5 tube inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's capital stock at the end of year equals

Accepted Answer

A)  1 machine. 
B)  2 machines. 
C)  3 machines. 
D)  6 machines.

Question 16

In January 2013,Tim's Gyms,Inc.owned machines valued at $1 million. During the year,the market value of the equipment fell by 30 percent. During 2013,Tim spent $200,000 on new machines.During 2013,Tim's gross investment totalled

Accepted Answer

A)  $1 million. 
B)  $300,000. 
C)  $200,000 
D)  $900,000.

Question 17

In November 2008,automobile executives from Ford,GM and Chrysler testified to Congress that their firms needed a $25 billion bailout to prevent bankruptcies. The executives stated that part of the cash would be used to re-design production lines. The $25 billion is ________ and the re-designed production lines are ________.

Accepted Answer

A)  financial capital; physical capital 
B)  gross investment; physical capital 
C)  physical capital; financial capital 
D)  net investment; gross investment

Question 18

At the beginning of the year,your wealth is $10,000.During the year,you have an income of $90,000 and you spend $80,000 on consumption.You pay no taxes.Your wealth at the end of the year is

Accepted Answer

A)  $20,000.00. 
B)  $0. 
C)  $90,000.00. 
D)  $100,000.00.

Question 19

Which of the following are included in the supply of loanable funds?
I. private saving
II. government budget surplus
III. international borrowing

Accepted Answer

A)  I, II and III. 
B)  I and III. 
C)  II and III. 
D)  I and II.

Question 20

If the real interest rate is above the equilibrium real interest rate,

Accepted Answer

A)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. 
B)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. 
C)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise. 
D)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall.

Exam 7: Finance, Saving, and Investment