Econ Exam 2 CH. 8,9,11,12
A bond that never matures is known as a
perpetuity.
In a closed economy, what does (T - G) represent?
public saving
If the tax revenue of the federal government is less than its spending, then the federal government necessarily
runs a budget deficit
At the broadest level, the financial system moves the economy's scarce resources from
savers to borrowers.
When a large, well-known corporation wishes to borrow directly from the public, it can
sell bonds.
When the government's budget deficit increases
the government is borrowing more and public savings falls.
According to the definitions of private and public saving, if Y, C, and G remained the same, an increase in taxes would
lower private saving and raise public saving.
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
make it less likely that The Eye of Horus will build the factory because the opportunity cost of the $10 million is now higher.
The slope of the demand for loanable funds curve represents the
negative relation between the real interest rate and investment.
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?
$2 trillion and $1 trillion, respectively
Suppose you put $500 into a bank account today. Interest is paid annually and the annual interest rate is 5.5 percent. The future value of the $500 is
$653.48 after 5 years and $854.07 after 10 years.
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
-Bond A was issued by a financially weak corporation and Bond B was issued by a financially strong corporation -Bond A has a term of 20 years and Bond B has a term of 1 year. -Bond A was issued by the Exxon Mobil Corporation and Bond B was issued by the state of New York.
Net exports must equal zero for any economy
-for which Y = C + I + G. -for which S = Y - C - G. -that is closed.
Which of the following statements is correct?
A general, persistent decline in stock prices may signal that the economy is about to enter a recession because low stock prices may mean that people are expecting low corporate profits.
Which of the following events would shift the demand curve from D1 to D2? D1 shifts to the right to D2, Supply does not change.
Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories.
Which of the following statements is correct?
For a closed economy, the sum of private saving and public saving must equal investment.
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.
Fran is saving; Miller is investing.
Which of the following events would shift the supply curve from S1 to S2? S1 shifts to the right to S2, demand does not change
In response to tax reform, households are encouraged to save more than they previously saved.
You observe a closed economy that has a government deficit and positive investment. Which of the following is correct?
Private saving is positive; public saving is negative.
Which of the following is not correct?
Purchases of capital goods are excluded from GDP.
Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?
Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds?
A government reduces its budget deficit, but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default. Which of the following is correct?
The reduced budget deficit will reduce interest rates in general. The increased risk of default will raise interest rates on government bonds.
In 2002 mortgage rates fell and mortgage lending increased. Which of the following could explain both of these changes?
The supply of loanable funds shifted rightward.
If you were to start a business delivering documents, you might need to purchase cell phones, bicycles, desks, and chairs.
These purchases are called capital investment. If you raise the funds to purchase them from others you are a borrower.
Other things the same, which bond would you expect to pay the highest interest rate?
a bond issued by a new chain of Brazilian-style restaurants
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 billion, consumption of $180 billion, taxes of $60 billion and transfers of $20 billion. From this information, we know that
country B has the largest government budget deficit.
Higher education subsidies in the form of the federal government's student loan program have the potential to
create a credit bubble and debt crisis.
All else equal, when people become more optimistic about a company's future, the
demand for the stock and the price will both rise.
Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts?
the interest rate would decrease and the quantity of loanable funds would increase.
If there is a shortage of loanable funds, then
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
The supply of loanable funds slopes
upward because an increase in the interest rate induces people to save more.
