Saving, Investment, and the Financial System 6399
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.
6406 Saving, Investment, and the Financial System
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.
Saving, Investment, and the Financial System 6407
Scenario 26-2. Assume the following information for an imaginary, closed economy.
GDP = $5 trillion; consumption = $3.1 trillion; 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.
Multiple Choice – Section 03: The Market for Loanable Funds
1.
The source of the supply of loanable funds
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.
Saving, Investment, and the Financial System 6417
Table 26-3. The following table presents information about a closed economy whose market for
loanable funds is
in equilibrium.
GDP
$8.7 trillion
Consumption Spending
$6.1 trillion
Taxes Net of Transfers
$1.0 trillion
Government Purchases
$0.8 trillion
2.
Refer to Table 26-3. Determine the quantity of private saving.
a.
$0.2 trillion
b.
$1.6 trillion
c.
$1.8 trillion
d.
$2.6 trillion
3.
Refer to Table 26-3. Determine the quantity of loanable funds demanded.
a.
$1.8 trillion
b.
$1.6 trillion
c.
$1.4 trillion
d.
$0.8 trillion
4.
The slope of the demand for loanable funds curve represents the
a.
positive relation between the real interest rate and investment.
b.
negative relation between the real interest rate and investment.
c.
positive relation between the real interest rate and saving.
d.
negative relation between the real interest rate and saving.
5.
The Eye of Horus incense company has $10 million in cash which it has accumulated from
retained earnings. It
was planning to use the money to build a new factory. Recently, the rate of
interest has increased. The increase in
the rate of interest should
a.
not influence the decision to build the factory because The Eye of Horus doesn’t have to borrow
any money.
b.
not influence the decision to build the factory because its stockholders are expecting a new
factory.
c.
make it more likely that The Eye of Horus will build the factory because a higher interest rate
will make the
factory more valuable.
d.
make it less likely that The Eye of Horus will build the factory because the opportunity cost of the
$10 million
is now higher.