Question 1

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Accepted Answer

The answer of In a closed economy private saving is...

Question 2

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Accepted Answer

A) True 
 B)False

Question 3

The source of the supply of loanable funds

Accepted Answer

A)  is saving and the source of demand for loanable funds is investment.
B)  is investment and the source of demand for loanable funds is saving.
C)  and the demand for loanable funds is saving.
D)  and the demand for loanable funds is investment.E) A) and B)
F) None of the above

Question 4

On which of these bonds is the prospect of default most likely?

Accepted Answer

A)  A junk bond
B)  A municipal bond
C)  A U.S.government bond
D)  A corporate bond issued by Proctor & Gamble CorporationE) A) and D)
F) B) and C)

Question 5

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Accepted Answer

A) True 
 B)False

Question 6

Refer to Scenario 26-1. This economy's government is running a budget

Accepted Answer

A)  surplus of $7,000.
B)  deficit of $6,000.
C)  deficit of $7,000.
D)  surplus of $6,000.E) B) and C)
F) A) and B)

Question 7

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is

Accepted Answer

A)  $6 billion and consumption is $7 billion.
B)  $6 billion and consumption is $6 billion.
C)  $7 billion and consumption is $7 billion.
D)  $7 billion and consumption is $6 billion.E) C) and D)
F) A) and C)

Question 8

For a closed economy, GDP is $37 trillion, consumption is $10 trillion, taxes are $2.0 trillion and the government runs a surplus of $3 trillion. What are private saving and national saving?

Accepted Answer

A)  $25.0 trillion and $28.0 trillion, respectively
B)  $28.0 trillion and $25.0 trillion, respectively
C)  −$25.0 trillion and −$28.0 trillion, respectively
D)  −$25.0 trillion and $28.0 trillion, respectivelyE) All of the above
F) B) and C)

Question 9

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Accepted Answer

A) True 
 B)False

Question 10

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.E) None of the above
F) All of the above

Question 11

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?

Accepted Answer

A)  "U.S.government bonds generally pay a higher rate of interest than corporate bonds."
B)  "The interest received on corporate bonds is taxable."
C)  "U.S.government bonds have the lowest default risk."
D)  "If you purchase a municipal bond, you can sell it before it matures."E) All of the above
F) A) and B)

Question 12

In a closed economy, investment must be equal to private saving.

Accepted Answer

A) True 
 B)False

Question 13

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run.

Accepted Answer

A) True 
 B)False

Question 14

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Accepted Answer

The answer of Bond A and Bond B have identical...

Question 15

By definition, government purchases and taxes are zero for a closed economy.

Accepted Answer

A) True 
 B)False

Question 16

An increase in the government's budget surplus means public saving is

Accepted Answer

A)  positive and increasing.
B)  positive and decreasing.
C)  negative and increasing.
D)  negative and decreasing.E) A) and B)
F) A) and C)

Question 17

A mutual fund

Accepted Answer

A)  is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
B)  is funds set aside by local governments to lend to small firms who want to invest in projects that are mutually beneficial to the firm and community.
C)  sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay high interest to obtain credit.
D)  is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of both stocks and bonds.E) C) and D)
F) B) and D)

Question 18

Figure 26-1
The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. 1 to S2? A) In response to tax reform, firms are encouraged to invest more than they previously invested. B) In response to tax reform, households are encouraged to save more than they previously saved. C) Government goes from running a balanced budget to running a budget deficit. D) Any of the above events would shift the supply curve from S1 to S2." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

A)  In response to tax reform, firms are encouraged to invest more than they previously invested.
B)  In response to tax reform, households are encouraged to save more than they previously saved.
C)  Government goes from running a balanced budget to running a budget deficit.
D)  Any of the above events would shift the supply curve from S1 to S2.E) C) and D)
F) A) and C)

Question 19

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Accepted Answer

A) True 
 B)False

Question 20

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy...

Exam 26: Saving, Investment, and the Financial System

For a closed economy, GDP is $37 trillion, consumption is $10 trillion, taxes are $2.0 trillion and the government runs a surplus of $3 trillion. What are private saving and national saving?

Correct AnswerverifiedShow Answer

An increase in the government's budget surplus means public saving is

Correct AnswerverifiedShow Answer

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below, the economy...View AnswerShow Answer

Figure 26-1 The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S1 to S2?

Correct AnswerverifiedShow Answer

In a closed economy private saving is $500 billion and the government budget deficit is $100 billion. What is investment?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

On which of these bonds is the prospect of default most likely?

Correct AnswerverifiedShow Answer

The source of the supply of loanable funds

Correct AnswerverifiedShow Answer

If the tax rate fell, holding municipal bonds would be less desirable so the interest rates on them would fall.

Correct AnswerverifiedShow Answer

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment.

Correct AnswerverifiedShow Answer

Bond A and Bond B have identical characteristics except that Bond A has a higher interest rate. Which bond has a higher credit risk?

Correct AnswerverifiedShow Answer

In a closed economy, investment must be equal to private saving.

Correct AnswerverifiedShow Answer

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?

Correct AnswerverifiedShow Answer

A mutual fund

Correct AnswerverifiedShow Answer

Financial markets are important for bringing equilibrium to the loanable funds market, but do not affect the efficient allocation of scarce resources in the long-run.

Correct AnswerverifiedShow Answer

The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5 billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Cedarland is $5 billion. For Cedarland, investment is

Correct AnswerverifiedShow Answer

All financial intermediaries are financial institutions, but not all financial institutions are financial intermediaries.

Correct AnswerverifiedShow Answer

Refer to Scenario 26-1. This economy's government is running a budget

Correct AnswerverifiedShow Answer

By definition, government purchases and taxes are zero for a closed economy.

Correct AnswerverifiedShow Answer

When the U.S. government is in debt during a given year, it follows that its budget is in deficit for that year.

Correct AnswerverifiedShow Answer

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As shown in the graph below, the economy...
View Answer

Figure 26-1 The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1. Which of the following events would shift the supply curve from S₁ to S₂?

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