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6530 Saving, Investment, and the Financial System
17. and are the two most important financial intermediaries.
18. The two most important financial markets are the _____ market and the _____ market.
19. In a closed economy private saving is $500 billion and the government budget deficit is $100
billion. What is investment?
Saving, Investment, and the Financial System 6531
20. In a closed economy taxes are $750 billion, government transfers are $400 billion, government
expenditures are $500 billion, and investment is $400 billion. What are private saving, public saving
and national saving?
21. In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If
the government has a budget surplus of $25, what are investment, taxes, private saving, and
national saving?
22. In the terminology of macroeconomics, what’s the difference between a saver and an investor?
6532 Saving, Investment, and the Financial System
23. Robert buys bonds. Rachel buys a new truck for her landscaping business. Identify both as
savers, investors, both, or neither.
24. A does not engage in international trade in goods and services and it does not engage in
international borrowing and lending.
25. National saving is the sum of and . In a closed economy it is equal to in
equilibrium.
Saving, Investment, and the Financial System 6533
26. In a closed economy, Y - C - G equals . The variable Y is , C is , and G is .
27. The income that households have left after paying their taxes and paying for their consumption is
known as .
28. Public saving is the difference between and .
29. In macroeconomics, refers to the purchase of new capital.
6534 Saving, Investment, and the Financial System
30. What variable adjusts to balance demand and supply in the market for loanable funds?
31. What is the source of the supply of loanable funds?
32. A higher interest rate makes more attractive. Therefore the quantity of loanable funds
supplied increases.
33. A higher interest rate makes less attractive. Therefore the quantity of loanable funds
demanded decreases.
Saving, Investment, and the Financial System 6535
34. What happens to desired investment spending if the interest rate rises? Is this response relevant to
the supply of loanable funds curve or the demand for loanable funds curve?
35. Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its
equilibrium level? How do desired saving and desired investment at this interest rate compare?
36. If at some interest rate desired investment is $400 billion, desired private saving is $600 billion, and
the budget deficit is $300 billion, is there a surplus or a shortage in the market for loanable funds?
What does this imply would happen to interest rates?
6536 Saving, Investment, and the Financial System
37. Congress and the President implement an investment tax credit. Which curve in the market for
loanable funds shifts, which direction does it shift, and what happens to the interest rate?
38. When tax code changes increase saving incentives, the interest rate will and investment
will .
39. When tax code changes reduce saving incentives, the interest rate will _____ and investment will
_____.
Saving, Investment, and the Financial System 6537
40. When tax code changes increase investment incentives, the _____ for loanable funds curve shifts
to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.
41. When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts
to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.
42. If the government budget deficit increases, which curve in the market for loanable funds shifts,
which direction does it shift, and what happens to the interest rate?
6538 Saving, Investment, and the Financial System
43. If the government reduces transfer payments, what happens to the budget deficit? What curve
does this change in the market for loanable funds, which direction does it shift, and what happens
to the equilibrium interest rate?
44. The interest rate will and the quantity of loanable funds invested will when the
government decreases the budget deficit.
45. When the government increases spending (holding taxes constant), the budget balance _____.
This causes the interest rate in the market for loanable funds to _____ and investment to _____.
Saving, Investment, and the Financial System 6539
46. When the government increases its borrowing, the budget _____ increases and government debt
_____. The resulting change in investment due to this increased government borrowing is called
_____.
47. An increase in the government budget deficit causes national saving to _____, the interest rate to
_____, and investment to _____.
48. Congress and the President allow people to make greater contributions to tax-deferred savings
accounts. Which curve in the market for loanable funds would shift, which direction would it shift,
what would happen to the interest rate, and what would happen to investment spending?
6540 Saving, Investment, and the Financial System
49. Which government policy raises the interest rate and raises investment spending?
50. If consumers reduced their spending, what would happen to the interest rate and investment?
