Question 1

An increase in the budget deficit is

Accepted Answer

A)   an increase in public saving.
B)   a decrease in private saving.
C)   an indication of a spendthrift government.
D)   a decrease in public saving.
E)   an increase in private saving.F) A) and E)
G) A) and B)

Question 2

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Accepted Answer

Private saving is Y ...

Question 3

If UK citizens become thriftier, we would expect

Accepted Answer

A)   the supply of loanable funds in the UK loanable funds market to shift to the right and the real interest rate to fall.
B)   the demand for loanable funds in the UK loanable funds market to shift to the right and the real interest rate to rise.
C)   the demand for loanable funds in the UK loanable funds market to shift to the right and the real interest rate to fall.
D)   the supply of loanable funds in the UK loanable funds market to shift to the right and the real interest rate to rise.E) C) and D)
F) A) and B)

Question 4

Identify each of the following acts as representing either saving or investment.
a. Jean uses some of his income to buy government bonds.
b. Julie takes some of her income and buys mutual funds.
c. Alex purchases a new truck for his delivery business using borrowed funds.
d. Kurt uses some of her income to buy stock in a major corporation.
e. Henrietta hires a builder to construct a new building for her bicycle shop.

Accepted Answer

a. Jean is saving.
b. Julie is...

Question 5

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

Accepted Answer

A)   intermediation.
B)   equity finance.
C)   crowding out.
D)   the investment fund effect.E) C) and D)
F) B) and D)

Question 6

Credit risk refers to a bond's

Accepted Answer

A)   probability of default.
B)   dividend.
C)   tax treatment.
D)   term to maturity.E) None of the above
F) A) and B)

Question 7

The government budget deficit is

Accepted Answer

A)   the difference between government purchases and government revenues from bonds and taxes.
B)   caused by a lack of business sector investment.
C)   created when the government expenditures exceed net taxes.
D)   caused by leakages in the economy.E) B) and C)
F) A) and D)

Question 8

If a series of major technological breakthroughs occur in the economy at the same time, then the most likely outcome would be that the economy's

Accepted Answer

A)   demand curve for loanable funds will shift downward.
B)   demand curve for loanable funds will shift upward.
C)   consumption curve will shift downward.
D)   position along the existing demand curve for loanable funds will move upward.E) A) and B)
F) A) and C)

Question 9

In a closed economy, investment is always equal to saving regardless of where the saving came from - public or private sources.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following statements is true?

Accepted Answer

A)   Long-term bonds tend to pay less interest than short-term bonds.
B)   Government bonds pay less interest than comparable corporate bonds.
C)   Investment funds are riskier than single stock purchases because the performance of so many different firms can affect the return of a mutual fund.
D)   A stock index is a directory used to locate information about selected stocks.E) None of the above
F) A) and B)

Question 11

A close friend with surplus money wants to buy either stock or bonds in Real Oak Furniture plc, which manufactures wooden furniture. He wants your advice on whether to buy stock or bonds. Explain how each of his quotes below should affect his choice between the stock and the bond.
a. "I have reason to believe that people are soon going to find rocking chairs have health benefits."
b. "I would like to tell people I am part owner of Real Oak Furniture plc."
c. "I do not want to take on much risk."

Accepted Answer

a. Presumably, when this happens, unless...

Question 12

If the supply of loanable funds is very inelastic (steep) , which policy would likely increase saving and investment the most?

Accepted Answer

A)   a reduction in the budget deficit
B)   an increase in the budget deficit
C)   an investment tax credit
D)   none of these answersE) B) and D)
F) B) and C)

Question 13

Investment is

Accepted Answer

A)   the purchase of goods and services.
B)   the purchase of capital equipment and structures.
C)   when we place our saving in the bank.
D)   the purchase of stocks and bonds.E) A) and D)
F) B) and C)

Question 14

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

Accepted Answer

Market for...

Question 15

Which of the following sets of government policies is the most growth oriented?

Accepted Answer

A)   Lower taxes on the returns to saving, provide investment tax credits, and lower the deficit.
B)   Increase tax on the returns to saving, provide investment tax credits, and increase the deficit.
C)   Increase tax on the returns to saving, provide investment tax credits, and lower the deficit
D)   Lower taxes on the returns to saving, provide investment tax credits, and increase the deficit.E) All of the above
F) A) and D)

Question 16

An increase in the budget deficit that causes the government to increase its borrowing shifts the

Accepted Answer

A)   supply of loanable funds to the right.
B)   demand for loanable funds to the left.
C)   demand for loanable funds to the right.
D)   supply of loanable funds to the left.E) B) and C)
F) A) and C)

Question 17

If the government budget deficit increases, the

Accepted Answer

A)   supply of loans increases and the equilibrium interest rate increases.
B)   supply of loans increases and the equilibrium interest rate decreases.
C)   demand for loans increases and the equilibrium interest rate decreases.
D)   demand for loans increases and the equilibrium interest rate increases.E) B) and D)
F) B) and C)

Question 18

UK government bonds pay less interest than corporate bonds issued by UK companies because the government bonds carry less credit risk.

Accepted Answer

A) True 
 B)False

Question 19

Consider a closed economy (with no foreign trade) . Assuming the economy was in equilibrium, use the following information to determine the government's budget deficit or surplus. 
  Consumption Spending €350 billion  Net Taxes €270 billion  Household Saving €250 billion  Investment Spending €220 billion \begin{array}{ll}	ext { Consumption Spending } & € 350 	ext { billion } \	ext { Net Taxes } & € 270 	ext { billion } \	ext { Household Saving } & € 250 	ext { billion } \	ext { Investment Spending } & € 220 	ext { billion }\end{array} Consumption Spending  Net Taxes  Household Saving  Investment Spending ​€350 billion €270 billion €250 billion €220 billion ​ 
The government's deficit (surplus)  was

Accepted Answer

A)   €30 billion surplus.
B)   €20 billion surplus.
C)   €30 billion deficit.
D)   €50 billion deficit. E) A) and B)
F) C) and D)

Question 20

What is the price of funds in the loanable funds market?

Accepted Answer

A)   the real wage rate
B)   the consumer price index
C)   the nominal interest rate
D)   the average firm profit rateE) A) and B)
F) All of the above

Exam 24: Saving, Investment and the Financial System

In a closed economy, investment is always equal to saving regardless of where the saving came from - public or private sources.

Correct Answer
verified

What is the price of funds in the loanable funds market?

Correct Answer
verified

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

Correct Answer
verified
Market for...
View Answer

UK government bonds pay less interest than corporate bonds issued by UK companies because the government bonds carry less credit risk.

Correct Answer
verified

Correct Answer
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a. Presumably, when this happens, unless...
View Answer

Credit risk refers to a bond's

Correct Answer
verified

If a series of major technological breakthroughs occur in the economy at the same time, then the most likely outcome would be that the economy's

Correct Answer
verified

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Correct Answer
verified
Private saving is Y ...
View Answer

Which of the following statements is true?

Correct Answer
verified

Correct Answer
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a. Jean is saving.
b. Julie is...
View Answer

An increase in the budget deficit that causes the government to increase its borrowing shifts the

Correct Answer
verified

If the supply of loanable funds is very inelastic (steep) , which policy would likely increase saving and investment the most?

Correct Answer
verified

Which of the following sets of government policies is the most growth oriented?

Correct Answer
verified

Investment is

Correct Answer
verified

If the government budget deficit increases, the

Correct Answer
verified

The government budget deficit is

Correct Answer
verified

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

Correct Answer
verified

Correct Answer
verified

If UK citizens become thriftier, we would expect

Correct Answer
verified

An increase in the budget deficit is

Correct Answer
verified

Exam 24: Saving, Investment and the Financial System

In a closed economy, investment is always equal to saving regardless of where the saving came from - public or private sources.

Correct AnswerverifiedShow Answer

What is the price of funds in the loanable funds market?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedMarket for...View AnswerShow Answer

UK government bonds pay less interest than corporate bonds issued by UK companies because the government bonds carry less credit risk.

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Presumably, when this happens, unless...View AnswerShow Answer

Credit risk refers to a bond's

Correct AnswerverifiedShow Answer

If a series of major technological breakthroughs occur in the economy at the same time, then the most likely outcome would be that the economy's

Correct AnswerverifiedShow Answer

In the national income accounting identity showing the equality between national saving and investment, what are the algebraic expressions for private saving and public saving?

Correct AnswerverifiedPrivate saving is Y ...View AnswerShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct Answerverifieda. Jean is saving.b. Julie is...View AnswerShow Answer

An increase in the budget deficit that causes the government to increase its borrowing shifts the

Correct AnswerverifiedShow Answer

If the supply of loanable funds is very inelastic (steep) , which policy would likely increase saving and investment the most?

Correct AnswerverifiedShow Answer

Which of the following sets of government policies is the most growth oriented?

Correct AnswerverifiedShow Answer

Investment is

Correct AnswerverifiedShow Answer

If the government budget deficit increases, the

Correct AnswerverifiedShow Answer

The government budget deficit is

Correct AnswerverifiedShow Answer

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If UK citizens become thriftier, we would expect

Correct AnswerverifiedShow Answer

An increase in the budget deficit is

Correct AnswerverifiedShow Answer

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Market for...
View Answer

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a. Presumably, when this happens, unless...
View Answer

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Private saving is Y ...
View Answer

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Correct Answer
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a. Jean is saving.
b. Julie is...
View Answer

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