Saving, Investment, and the Financial System 6379
22. Which of the following equations represents GDP for an open economy?
a. Y = C + I + G + NX
b. NX = I – G
c. I = Y – C + G + NX
d. Y = C + I + G
23. Which of the following expressions must be equal to national saving for a closed economy?
a. Y – I – G – NX
b. Y – C – G
c. Y – I – C
d. G + C – Y
24. In a closed economy, national saving equals
a. investment.
b. income minus the sum of consumption and government purchases.
c. private saving plus public saving.
d. All of the above are correct.
6380 Saving, Investment, and the Financial System
25. In a closed economy, national saving is
a. usually greater than investment.
b. equal to investment.
c. usually less than investment because of the leakage of taxes.
d. always less than investment.
26. In a small closed economy investment is $50 billion and private saving is $45 billion. What are
public saving and national saving?
a. $5 billion and $45 billion
b. –$5 billion and $45 billion
c. $5 billion and $50 billion
d. –$5 billion and $50 billion
Saving, Investment, and the Financial System 6381
27. Suppose private saving in a closed economy is $12b and investment is $10b.
a. National saving must equal $12b.
b. Public saving must equal $2b.
c. The government budget surplus must equal $2b.
d. The government budget deficit must equal $2b.
28. When public saving falls by $2b and private saving falls by $1b in a closed economy,
a. investment falls by $1b.
b. investment falls by $3b.
c. investment increases by $1b.
d. investment falls by $2b.
6382 Saving, Investment, and the Financial System
29. Suppose a closed economy had public saving of –$1 trillion and private saving of $3 trillion. What
are national saving and investment for this country?
a. $2 trillion, $2 trillion
b. $2 trillion, $3 trillion
c. $3 trillion, $3 trillion
d. $4 trillion, $2 trillion
30. Consider the expressions T – G and Y – T – C. Which of the following statements is correct?
a. Each one of these is equal to national saving.
b. Each one of these is equal to public saving.
c. The first of these is private saving; the second one is public saving.
d. The first of these is public saving; the second one is private saving.
Saving, Investment, and the Financial System 6383
31. According to the definitions of private and public saving, if Y, C, and G remained the same, an
increase in taxes would
a. raise both private and public saving.
b. raise private saving and lower public saving.
c. lower private saving and raise public saving.
d. lower private and public saving.
32. According to the definitions of national saving and private saving, if Y, C, and G remained the
same, an increase in taxes would
a. raise both national saving and private saving.
b. raise national saving and reduce private saving.
c. leave national saving and private saving unchanged.
d. leave national saving unchanged and reduce private saving.
6384 Saving, Investment, and the Financial System
33. According to the definitions of national saving and public saving, if Y, C, and G remained the
same, an increase in taxes would
a. raise national saving and public saving.
b. raise national saving and raise public saving.
c. leave national saving and public saving unchanged.
d. leave national saving unchanged and raise public saving.
34. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 1,000, consumption
equals 7,500, and government purchases equal 2,000. What is national saving?
a. –500
b. 500
c. 2,000
d. None of the above is correct.
Saving, Investment, and the Financial System 6385
35. For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3
trillion and the government runs a deficit of $1 trillion. What are private saving and national
saving?
a. $5 trillion and $3 trillion, respectively
b. $5 trillion and $1 trillion, respectively
c. $2 trillion and $3 trillion, respectively
d. $2 trillion and $1 trillion, respectively
36. Suppose that in a closed economy GDP is equal to 15,000, government purchases are equal to
3,000, consumption equals 10,500, and taxes equal 3,500. What are private saving and public
saving?
a. 1,500 and –500, respectively
b. 1,500 and 500, respectively
c. 1,000 and –500, respectively
d. 1,000 and 500, respectively
6386 Saving, Investment, and the Financial System
37. Suppose that in a closed economy GDP is equal to 20,000, consumption equal to 15,000,
government purchases equal 4,000 and taxes equal 3,000. What are private saving, public saving,
and national saving?
a. -2,000, 1,000, and 2,000, respectively.
b. 1,000, 2,000, and 3,000, respectively.
c. 2,000, -1,000, and 1,000, respectively.
d. 2,000, 1,000, and 2,000, respectively.
38. Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 500. What
value of government purchases would make national savings equal to 2,000 and at that value
would the government have a deficit or surplus?
a. 1,500, deficit
b. 1,500, surplus
c. 1,000, deficit
d. 1,000, surplus
Saving, Investment, and the Financial System 6387
39. Suppose the economy is closed with national saving of $3 trillion, consumption of $10 trillion, and
government purchases of $4 trillion. What is GDP?
a. $3 trillion
b. $9 trillion
c. $11 trillion
d. $17 trillion
40. Suppose the economy is closed and consumption is 8 million, taxes are 2 million, and government
purchases are 1.75 million. If national saving amounts to 1.25 million, then what is GDP?
a. 9 million.
b. 9.5 million.
c. 13 million.
d. 11 million.
6388 Saving, Investment, and the Financial System
41. For a closed economy, GDP is $18 trillion, consumption is $13 trillion, taxes are $2 trillion and the
government runs a deficit of $1 trillion. What are private saving and national saving?
a. $3 trillion and $1 trillion, respectively
b. $3 trillion and $2 trillion, respectively
c. $2 trillion and $3 trillion, respectively
d. $2 trillion and $2 trillion, respectively
42. For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the
government runs a surplus of $1 trillion. What are private saving and national saving?
a. $1.5 trillion and $2.5 trillion, respectively
b. $2.5 trillion and $1.5 trillion, respectively
c. $2.5 trillion and $2.5 trillion, respectively
d. $1.5 trillion and $1.5 trillion, respectively
Saving, Investment, and the Financial System 6389
43. If in a closed economy Y = $11 trillion, which of the following combinations would be consistent
with national saving of $3 trillion?
a. C = $8 trillion, G = $3 trillion
b. C = $13 trillion, G = –$1 trillion
c. C = $9 trillion, G = $5 trillion
d. C = $7 trillion, G = $1 trillion
44. For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is
running a budget surplus of $1,000. Then
a. private saving = $10,000 and GDP = $55,000.
b. private saving = $10,000 and GDP = $63,000.
c. private saving = $12,000 and GDP = $67,000.
d. private saving = $12,000 and GDP = $69,000.
6390 Saving, Investment, and the Financial System
Scenario 26-1. Assume the following information for an imaginary, closed economy.
GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000.
45. Refer to Scenario 26-1. For this economy, investment amounts to
a. $38,000.
b. $18,000.
c. $12,000.
d. $15,000.
46. Refer to Scenario 26-1. This economy’s government is running a
a. budget surplus of $3,000.
b. budget surplus of $12,000.
c. budget deficit of $3,000.
d. budget deficit of $12,000.
Saving, Investment, and the Financial System 6391
47. Refer to Scenario 26-1. For this economy, private saving amounts to
a. $22,000.
b. $18,000.
c. $15,000.
d. $37,000.
48. Refer to Scenario 26-1. For this economy, consumption amounts to
a. $68,000.
b. $38,000.
c. $53,000.
d. $60,000.
6392 Saving, Investment, and the Financial System
49. In the small closed economy of San Lorena, the currency is the denar. Statistics for last year
show that private saving was 60 billion denars, taxes were 80 billion denars, government
purchases of goods and services were 70 billion denars, there were no transfer payments by the
government, and GDP was 400 billion denars. What were consumption and investment in San
Lorena?
a. 270 billion denars, 50 billion denars
b. 250 billion denars, 60 billion denars
c. 260 billion denars, 70 billion denars
d. None of the above is correct.
50. The country of Meditor, a small country with a closed economy, uses the merit as its currency.
Recent national income statistics showed that it had GDP of $600 million merits, no government
transfer payments, taxes of $150 million merits, a budget surplus of $40 billion merits, and
investment of $100 billion merits. What were its consumption and government expenditures on
goods and services?
a. $460 million merits and $150 million merits
b. $310 million merits and $190 million merits
c. $350 million merits and $190 million merits
d. $390 million merits and $110 million merits
Saving, Investment, and the Financial System 6393
51. Consider three different closed economies with the following national income statistics. Country
A has taxes of $40 billion, transfers of $20 billion, and government expenditures on goods and
services of $30 billion. County B has private savings of $60 billion, and investment expenditures of
$40 billion. Country C has GDP of $300 billion, investment of $90, consumption of $180 billion,
taxes of $60 billion and transfers of $20 billion. From this information, we know that
a. country A has the largest government budget deficit.
b. country B has the largest government budget deficit.
c. country C has the largest government budget deficit.
d. The government budget deficit is equal in all three countries.
52. In examining the national income accounts of the closed economy of Nepotocracy you see that
this year it had taxes of $100 billion, transfers of $20 billion, and government purchases of goods
and services of $70 billion. You also notice that last year it had private saving of $70 billion and
investment of $50 billion. In which year did Nepotocracy have a budget deficit of $20 billion?
a. this year and last year
b. this year but not last year
c. last year but not this year
d. neither this year nor last year
6394 Saving, Investment, and the Financial System
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.
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
Saving, Investment, and the Financial System 6395
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.
6396 Saving, Investment, and the Financial System
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.
6398 Saving, Investment, and the Financial System
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.