econ

If GDP = $1,000, consumption = $600, taxes = $100, and government purchases = $200, how much is saving and investment?

saving = $200, investment = $200

An increase in the budget surplus

shifts the demand for loanable funds to the right and increases the real interest rate

Investment is

the purchase of capital equipment and structures

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. Refer to Scenario 26-1. For this economy, public saving is equal to

$-10,000 and the government is running a budget deficit of $10,000.

Scenario 26-2. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. Refer to Scenario 26-2. For this economy, GDP equals

$1,680.

Scenario 26-2. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. Refer to Scenario 26-2. For this economy, government purchases amount to

$280

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. Refer to Scenario 26-1. For this economy, national saving is equal to

$45,000

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. Refer to Scenario 26-1. For this economy, private saving is equal to

$55,000.

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $200,000; consumption = $120,000; government purchases = $35,000; and taxes = $25,000. Refer to Scenario 26-1. Suppose, for this economy, the relationship between the real interest rate, r, and investment, I, is given by the equation I = 69,000 - 3,000r. (If, for example, r = 10, this means that the real interest rate is 10 percent.) The equilibrium real interest rate for this economy is

8 percent.

An increase in the budget deficit that causes the government to increase its borrowing

shifts the supply of loanable funds to the left.

Which of the following statements is correct? A) NASDAQ is an important stock exchange in the United States. B) The Standard & Poor's 500 Index and the New York Stock Exchange are two examples of stock indexes. C) The most significant influence on the demand for a corporation's stock is the number of shares of the stock that the corporation has issued. D) All of the above are correct.

A) NASDAQ is an important stock exchange in the United States.

Which of the following statements is true ? A) A stock index is a directory used to locate information about selected stocks. B) Municipal bonds pay less interest than comparable corporate bonds. C) Mutual funds are riskier than single stock purchases because the performance of so many different firms can affect the return of a mutual fund. D) Longer-term bonds tend to pay less interest than shorter-term bonds.

B) Municipal bonds pay less interest than comparable corporate bonds.

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) taxes C) government purchases D) net exports

B) taxes

Which of the following is an example of equity finance? A) corporate bonds B) bank loan C) stock D) municipal bonds E) All of these answers are examples of equity finance.

C) stock

Which of the following statements is correct? A) NASDAQ is an important stock exchange in the United States. B) The demand for a corporation's stock is largely based on people's perception of the corporation's profitability in the future. C) Compared to the Standard & Poor's 500 Index, the Dow Jones Industrial Average incorporates the stock prices of a much smaller number of corporations. D) All of the above are correct.

D) All of the above are correct.

Which of the following financial market securities would likely pay the highest interest rate? A) a municipal bond issued by the state of Texas B) a mutual fund with a portfolio of blue chip bonds C) a bond issued by a blue chip company D) a bond issued by a start-up company

D) a bond issued by a start-up company

Which of the following is not a characteristic of a bond? A) its tax treatment B) its credit risk C) its term D) its dividend yield

D) its dividend yield

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?

I

Cassie purchases 1,000 shares of a mutual fund for $1,000. Cassie's purchase of these shares contributes $1,000 to which magnitude in the identity Y = C + I + G?

None of the above are correct.

An increase in the budget deficit will

RAISE the real interest rate and DECREASE the quantity of loanable funds demanded for investment.

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

S = I + NX.

If the public consumes $100 billion less and the government purchases $100 billion more (other things unchanging), which of the following statements is true ?

Saving is unchanged.

Which of the following financial market securities would likely pay the highest interest rate?

a bond issued by a start-up company

An increase in the budget deficit is

a decrease in public saving

If the supply of loanable funds is very inelastic (steep), which policy would likely increase saving and investment the most?

a reduction in the budget deficit

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

an expansion of eligibility for Individual Retirement Accounts

A financial intermediary is a middleperson between

borrowers and lenders.

Scenario 26-2. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. Refer to Scenario 26-2. This economy's government is running a

budget deficit of $50.

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

crowding out.

What do we call financial institutions through which savers can indirectly provide funds to borrowers?

financial intermediaries

The bond market, the stock market, banks, pension funds, and insurance companies are all financial

institutions.

Which of the following sets of government policies is the most growth oriented?

lower taxes on the returns to saving, provide investment tax credits, and lower the deficit

If an economy is closed and if it has no government, then

national saving = private saving.

When the government goes from running a balanced budget to running a budget deficit,

national saving DECREASES, the interest rate RISES, and the economy's long-run growth rate is likely to DECREASE.

National saving (or just saving) is equal to

private saving + public saving.

Credit risk refers to a bond's

probability of default.

If Americans become less concerned with the future and save less at each real interest rate,

real interest rates rise and investment falls.

Which of the following is an example of equity finance?

stock

Which of the following numbers is not associated with shares of a company's stock?

term

Who accepts all of the risk associated with a mutual fund's portfolio of stocks and/or bonds?

the fund's shareholders

If the government increases investment tax credits and reduces taxes on the return to saving at the same time,

the impact on the real interest rate is indeterminate.

Investment is

the purchase of capital equipment and structures.

For an imaginary economy, when the real interest rate is 7 percent, the quantity of loanable funds demanded is $500 and the quantity of loanable funds supplied is $500. Currently, the nominal interest rate is 9 percent and the inflation rate is 4 percent. Currently,

the quantity of loanable funds DEMANDED exceeds the quantity of loanable funds supplied, and as a result the real interest rate will rise.

For an imaginary economy, when the real interest rate is 5 percent, the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000. Currently, the nominal interest rate is 9 percent and the inflation rate is 2 percent. Currently,

the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, and as a result the real interest rate will FALL

If Americans become more thrifty, we would expect

the supply of loanable funds to shift to the right and the real interest rate to fall.

If government spending exceeds tax collections,

there is a budget deficit.

Borrowers can (and sometimes do) default on their loans when

they declare bankruptcy.