determine if the government is experiencing a budget deficit or a budget surplus.
Fiscal policy
BLOOM’S: Application
53. You have some estimates of national accounts numbers for a closed economy for the coming year. Under one set of
expectations, government purchases will be $30 billion, transfer payments will be $10 billion, and taxes will be $45
billion. Under another set of expectations, GDP will be $200 billion, taxes will be $50 billion, transfer payments will be
$20 billion, consumption will be $120 million, and investment will be $40 billion. Based on these numbers in the first
case there should be a
a.
$15 billion surplus, and in the second case a $10 billion surplus.
b.
$15 billion surplus, and in the second case a $30 billion deficit.
c.
$5 billion surplus, and in the second case a $10 billion deficit.
d.
$5 billion surplus, and in the second case a $30 billion deficit.
Saving and Investment in the National Income Accounts
BLOOM’S: Analysis
54. The country of Growpaw does not trade with any other country. Its GDP is $20 billion. Its government purchases $3
billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to
households. Private saving in Growpaw is $4 billion. What is investment in Growpaw?
a.
$5 billion
b.
$4 billion
c.
$3 billion
d.
$11 billion
55. 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,
a.
investment is $6 billion and consumption is $7 billion.
b.
investment is $6 billion and consumption is $6 billion.
c.
investment is $7 billion and consumption is $7 billion.
d.
investment is $7 billion and consumption is $6 billion.
56. The country of Yokovia does not trade with any other country. Its GDP is $20 billion. Its government collects $2
billion in taxes. Consumption equals $15 billion and investment equals $2 billion. What is public saving in Yokovia, and
what is the value of the goods and services purchased by the government of Yokovia?
a.
–$2 billion and $1 billion.
b.
$1 billion and $1 billion.
c.
–$1 billion and $3 billion.
d.
–$2 billion and $3 billion.
57. The country of Bienmundo does not trade with any other country. Its GDP is $30 billion. Its government purchases $5
billion worth of goods and services each year and collects $6 billion in taxes. Private saving in Bienmundo amounts to $5
billion. What are consumption and investment in Bienmundo?
a.
$17 billion and $8 billion, respectively.
b.
$19 billion and $6 billion, respectively.
c.
$19 billion and $8 billion, respectively.
d.
$17 billion and $6 billion, respectively.
58. In a closed economy, private saving is
a.
the amount of income that households have left after paying for their taxes and consumption.
b.
the amount of income that businesses have left after paying for the factors of production.
c.
the amount of tax revenue that the government has left after paying for its spending.
d.
always equal to investment.
59. In a closed economy, public saving is the amount of
a.
income that households have left after paying for taxes and consumption.
b.
income that businesses have left after paying for the factors of production.
c.
tax revenue that the government has left after paying for its spending.
d.
spending that the government undertakes in excess of the taxes it collects.
60. Which of the following is not always correct for a closed economy?
a.
National saving equals private saving plus public saving.
b.
Net exports equal zero.
c.
Real GDP measures both income and expenditures.
d.
Private saving equals investment.
61. If the tax revenue of the federal government is less than its spending, then the federal government necessarily
a.
runs a budget deficit.
b.
runs a budget surplus.
c.
runs a national debt.
d.
will increase taxes.
62. When the government has a budget surplus
a.
it buys more of its bonds from the public than it sells to the public.
b.
it spends more than it receives in tax revenue.
c.
private saving is greater than zero.
d.
exports are greater than imports.
63. A budget surplus
a.
occurs when the government has debt equal to zero.
b.
causes government debt to increase.
c.
exists when government spending is greater than tax revenues.
d.
reduces the government’s debt.
64. When the government’s budget deficit increases
a.
the government is borrowing less and public savings falls.
b.
the government is borrowing less and public savings increases.
c.
the government is borrowing more and public savings falls.
d.
the government is borrowing more and public savings increases.
65. An increase in the government’s budget surplus means
a.
public saving is greater than $0 and increasing.
b.
public saving is greater than $0 and decreasing.
c.
public saving is less than $0 and increasing.
d.
public saving is less than $0 and decreasing.
66. An increase in the government’s budget deficit means
a.
public saving is greater than $0 and increasing.
b.
public saving is greater than $0 and decreasing.
c.
public saving is less than $0 and increasing.
d.
public saving is less than $0 and decreasing.
67. In the language of macroeconomics, investment refers to
a.
saving.
b.
the purchase of new capital.
c.
the purchase of stocks, bonds, or mutual funds.
d.
All of the above are correct.
68. Larry buys stock in A to Z Express Company. Curly Corporation builds a new factory. Whose transaction would be an
act of investment in the language of macroeconomics?
a.
only Larry’s
b.
only Curly Corporation’s
c.
Larry’s and Curly Corporation’s
d.
neither Larry’s nor Curly Corporation’s
69. Jim buys a $1000 bond from ABC Company. ABC Company uses the $1000 to purchase a new piece of machinery.
Whose spending would be an act of investment in the language of macroeconomics?
a.
only Jim’s
b.
only ABC Corporation’s
c.
Jim’s and ABC Corporation’s
d.
neither Jim’s nor ABC Corporation’s
70. Which of the following would be included as investment in the GDP accounts?
a.
the government buys goods from another country
b.
someone buys stock in an American company
c.
a firm increases its capital stock
d.
All of the above are correct.
71. Which of the following would a macroeconomist consider as investment?
a.
Marisa purchases a bond issued by Proctor and Gamble Corp.
b.
Karlee purchases stock issued by Texas Instruments, Inc.
c.
Charlie builds a new coffee shop.
d.
All of the above are correct.
72. Melinda buys new equipment for her dental office with funds she borrowed from a bank that raised funds from
depositors. Which of the following is correct?
a.
Melinda is an investor.
b.
The depositors are investors.
c.
Both Melinda and the depositors are investors.
d.
Neither Melinda nor the depositors are investors.
73. Fran buys 1,000 shares of stock issued by Miller Brewing. In turn, Miller uses the funds to buy new machinery for one
of its breweries.
a.
Fran and Miller are both investing.
b.
Fran and Miller are both saving.
c.
Fran is investing; Miller is saving.
d.
Fran is saving; Miller is investing.
74. For an economy that engages in international trade, GDP is divided into four components. Which of the following
items is not one of those components?
a.
consumption.
b.
national saving.
c.
government purchases.
d.
net exports.
75. Mandy purchases 68.2 shares of a mutual fund for $1,500. Cassie’s purchase of these shares contributes $1,500 to
which magnitude in the identity Y = C + I + G?
a.
C
b.
I
c.
G
d.
None of the above are correct.
76. Ethan purchases a new house for $170,000. Ethan’s purchase of the house contributes $170,000 to which magnitude in
the identity Y = C + I + G?
a.
C
b.
I
c.
G
d.
None of the above are correct.
77. For an open economy, the equation Y = C + I + G + NX is an identity. If we define national saving, S, as the total
income in the economy that is left after paying for consumption and government purchases, then for an open economy, it
is true that
a.
S = I.
b.
S = 0.
c.
I = S + NX.
d.
S = I + NX.
78. If an economy is closed and if it has no government, then
a.
national saving = 0.
b.
national saving = private saving.
c.
public saving = investment.
d.
gross domestic product = consumption.
government purchases = $0.7 trillion; and taxes = $0.9 trillion.
79. Refer to Scenario 26–2. For this economy, investment amounts to
a.
$0.4 trillion.
b.
$2.1 trillion.
c.
$1.7 trillion.
d.
$1.2 trillion.
80. Refer to Scenario 26–2. For this economy, public saving is equal to
a.
$0.2 trillion and the government is running a budget surplus of $0.2 trillion.
b.
$0.2 trillion and the government is running a budget deficit of $0.2 trillion.
c.
-$0.2 trillion and the government is running a budget deficit of $0.2 trillion.
d.
-$0.2 trillion and the government is running a budget surplus of $0.2 trillion.
81. Refer to Scenario 26–2. For this economy, private saving is equal to
a.
$0.3 trillion.
b.
$1.2 trillion.
c.
$1.0 trillion.
d.
$1.7 trillion.
82. Refer to Scenario 26–2. For this economy, national saving is equal to
a.
$1.1 trillion.
b.
$2.9 trillion.
c.
$1.2 trillion.
d.
$1.7 trillion.
83. Refer to Scenario 26–2. Suppose, for this economy, the relationship between the real interest rate, r, and investment,
I, is given by the equation I = 10.78 – 3.03r. (If, for example, r = 10, this means that the real interest rate is 10 percent.)
The equilibrium real interest rate for this economy is
a.
3.19 percent.
b.
3.00 percent.
c.
3.16 percent.
d.
7.14 percent.
Scenario 26–3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = –$50;
taxes = $230; private saving = $225; and national saving = $150.
84. Refer to Scenario 26–3. This economy’s government is running a
a.
budget deficit of $75.
b.
budget deficit of $80.
c.
budget deficit of $50.
d.
budget deficit of $100.
85. Refer to Scenario 26–3. For this economy, government purchases amount to
a.
$330.
b.
$280.
c.
$305.
d.
$310.
86. Refer to Scenario 26–3. For this economy, GDP equals
a.
$1,480.
b.
$1,505.
c.
$1,460
d.
$1,455.
87. In a closed economy, if Y, C, and T remained the same, a decrease in G would
a.
reduce private saving and public saving.
b.
increase private saving but not public saving.
c.
increase public saving but not private saving.
d.
increase neither private nor public saving.
88. In a closed economy, if Y remained the same, but G rose, T rose by the same amount as G, and C fell but by less than
the increase in T, what would happen to private and national saving?
a.
national saving would fall and private saving would rise
b.
national saving would rise and private saving would fall
c.
both national saving and private saving would fall
d.
None of the above is correct.
89. 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?
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
90. 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 private and national saving?
a.
private and national saving would rise
b.
private and national saving would fall
c.
private saving would rise and national saving would fall
d.
private saving would fall and national saving would rise
91. In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
a.
the government has a budget surplus and investment is 1,000
b.
the government has a budget surplus and investment is 2,000
c.
the government has a budget deficit and investment is 1,000
d.
the government has a budget deficit and investment is 2,000
92. Last quarter in a closed economy GDP was 200,000. Expenditures on capital goods such as business equipment and
structures was 19,000, inventory rose 1,000, and new construction of homes was 8,000. Consumption was 135,000 and
taxes were 32,000. What was public saving?
a.
-4,000
b.
-5,000
c.
-14,000
d.
-6,000
93. National saving
a.
is the total income in the economy that remains after paying for consumption.
b.
is the total income in the economy that remains after paying for consumption and government purchases.
c.
is always greater than investment for a closed economy.
d.
is equal to private saving minus public saving.
94. Which of the following restrictions implies that saving and investment are equal for a closed economy?
a.
Private saving is equal to zero.
b.
Public saving is equal to zero.
c.
The economy’s government is running neither a surplus nor a deficit.
d.
No restriction is necessary; saving and investment are equal for all closed economies.
95. Which of the following restrictions implies that private saving and investment are equal for a closed economy?
a.
Consumption and private saving are equal.
b.
The economy’s government is running neither a surplus nor a deficit.
c.
Private saving and public saving are both zero.
d.
No restriction is necessary; private saving and investment are equal for all closed economies.
96. Which of the following restrictions implies that investment exceeds private saving for a closed economy?
a.
The economy has no government.
b.
The economy’s government is running a budget deficit.
c.
The economy’s government is running a budget surplus.
d.
No restriction is necessary; investment and private saving are equal for all closed economies.
97. If an economy is closed and if it has no government, then
a.
national saving = private saving.
b.
total income = consumption + investment.
c.
saving = total income – consumption.
d.
All of the above are correct.
98. Valeria is a closed economy, where consumption totals $3 billion, tax payments are $300 million, government
spending is $1 billion, and GDP is $5 billion. Private saving amounts to
a.
$1.7 billion and Valeria’s government runs a budget deficit.
b.
$1.7 billion and Valeria’s government runs a budget surplus.
c.
$1 billion and Valeria’s government runs a budget deficit.
d.
$1 billion and Valeria’s government runs a budget surplus
99. The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $50 million. If GDP,
consumption, and government spending remains the same and Alpetra is a closed economy, what is the change in
investment?
a.
$50 million
b.
$100 million
c.
No change
d.
Cannot be determined from the information given
100. The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $30 million. In
response, consumption falls by $8 million. If GDP and government spending remains the same and Alpetra is a closed
economy, what is the change in investment?
a.
Investment increases by $8 million.
b.
Investment decreases by $8 million.
c.
Investment increases by $38 million.
d.
Investment decreases by $22 million.
101. The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $70 million.
Government spending also increases by $70 million and consumption falls by $10 million. If GDP remains the same and
Alpetra is a closed economy, then investment
a.
increases by $140 million.
b.
increases by $70 million.
c.
decreases by $60 million.
d.
decreases by $80 million.