Question 1

Public saving is:

Accepted Answer

A) increased when the government budget deficit rises. 
B) identical to the government budget surplus. 
C) less important to national saving than private saving. 
D) more important to national saving than private saving.

Question 2

Social Security benefits, welfare payments, and farm support payments are examples of:

Accepted Answer

A) consumption spending. 
B) public interest payments. 
C) investment spending. 
D) transfer payments.

Question 3

An increase in the government's budget deficit ________ the real interest rate and ________ the equilibrium quantity of national saving.

Accepted Answer

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

Question 4

Fred and Wilma just had a baby girl and want to make sure they save enough in the future to send her to college. They begin to save in response to this ________ reason for saving.

Accepted Answer

A) life-cycle 
B) bequest 
C) private 
D) precautionary

Question 5

An explanation for the low saving rate in the United States consistent with the life-cycle reason for saving includes:

Accepted Answer

A) relatively generous government assistance for the elderly and large down payments required for home purchases. 
B) households spending beyond their means to keep up with community standards. 
C) highly-developed financial systems making it easy to buy homes with down payments under 15 percent. 
D) large and persistent capital gains.

Question 6

Jordan has the following assets and liabilities: $$\begin{array} { l | r } 
\hline \text { Tuo cars } & \$ 10,000 \
\text { House } & \$ 200,000 \
\text { Mortgage } & \$ 100,000 \
\hline \text { Cash } & \$ 1,000 \
\text { Car loars } & \$ 3,000 \
\hline \text { Checkire accourtbalarce } & \$ 2,000 \
\text { Credit card balarce } & \$ 1,000
\end{array}$$  
What is the value of Jordan's liabilities?

Accepted Answer

A) $100,000 
B) $104,000 
C) $213,000 
D) $317,000

Question 7

Where Y is GDP, C is consumption, I is investment, (G )is government spending, (T )is net taxes, and there is no international trade, public saving equals:

Accepted Answer

A) T - G. 
B) Y - T - C. 
C) Y + T - G. 
D) Y - C - T.

Question 8

Holding other factors constant, a decline in the price of new capital goods will:

Accepted Answer

A) increase national saving. 
B) decrease national saving. 
C) increase investment. 
D) decrease investment.

Question 9

National saving is saving by:

Accepted Answer

A) households for retirement. 
B) the government. 
C) households and firms. 
D) the entire economy.

Question 10

Empirical evidence indicates that higher real interest rates lead to ________ in savings.

Accepted Answer

A) modest increases 
B) substantial increases 
C) no change in 
D) modest decreases

Question 11

The change in wealth during a period equals:

Accepted Answer

A) saving + capital gains - capital losses. 
B) saving - capital gains + capital losses. 
C) saving - investment + capital gains - capital losses. 
D) public saving + private saving - transfers.

Question 12

Bob has heard rumors that his employer will be merging with another firm and many employees may lose their jobs, and he wants to be prepared in case he loses his job. If he begins to save more in response to this rumor, it is a ________ reason for saving.

Accepted Answer

A) life-cycle 
B) public 
C) private 
D) precautionary

Question 13

Holding other factors constant, a technological improvement that increases the marginal product of capital will:

Accepted Answer

A) increase national saving. 
B) decrease national saving. 
C) increase investment. 
D) decrease investment.

Question 14

The value of the marginal product of new capital increases when the:

Accepted Answer

A) price of new capital goods increases. 
B) real interest rate increases. 
C) the price of the good the firm produces decreases. 
D) productivity of new capital increases.

Question 15

Based on the following information, what is the amount of public saving? $$\begin{array} { | l | c | c | } 
\hline & \text { Receipts } & \text { Expenditures } \
\hline \text { Federal and Goverment } & 2,500 & 2,000 \
\hline \text { State ard Local Goverrments } & 1,200 & 1,500 \
\hline
\end{array}$$

Accepted Answer

A) +3,700 
B) +2,500 
C) +200 
D) -300

Question 16

Holding other factors constant, if a tax increase moves the government budget from deficit to surplus, then the real interest rate will ________ and the equilibrium quantity of national saving and investment will ________.

Accepted Answer

A) increase; increase 
B) decrease; decrease 
C) increase; not change 
D) decrease; increase

Question 17

Private saving is positive when:

Accepted Answer

A) there is a government budget surplus. 
B) there is a government budget deficit. 
C) the government's budget is balanced. 
D) after-tax income of households and businesses is greater than consumption expenditures.

Question 18

Payments by the government to the public for which the government receives no current goods or services in return are called:

Accepted Answer

A) public saving. 
B) net taxes. 
C) transfer payments. 
D) capital losses.

Question 19

The three broad reasons for saving, as identified by economists, relate to:

Accepted Answer

A) consumption, investment, and exports. 
B) national, public, and private production. 
C) the life-cycle, precaution, and bequests. 
D) capital gains, capital losses, and deficits.

Question 20

The saving rate equals saving divided by:

Accepted Answer

A) wealth. 
B) assets. 
C) liabilities. 
D) income.

Exam 21: Saving and Capital Formation