ECON FINAL chapter 10

The old adage, "Don't put all your eggs in one basket," is very similar to a modern bit of advice concerning financial matters:

"Diversify."

For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $3 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

$1 trillion and $2 trillion, respectively

Refer to Scenario 8-2. For this economy, investment amounts to

$45,000.

In a small closed economy investment is $50 billion and private saving is $55 billion. What are public saving and national saving?

-$5 billion and $50 billion

Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus?

2,500, deficit

If, between 2003 and 2013, the economy's real GDP grew from $20 billion to $40 billion, what was the average annual growth rate in the economy?

7%

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

All of the above are correct.

Refer to Figure 8-1. Which of the following events would shift the supply curve from S1 to S2?

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.

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

The interest rate and investment would rise.

In the late summer of 2005 some regions of the country were suffering from drought. What effect would we expect this to have on the stock of companies such as John Deere that manufacture farm equipment?

decrease the demand for existing shares of the stock, causing the price to fall

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.

A perpetuity is distinguished from other bonds in that it

never matures.

World Wide Delivery Service Corporation develops a way to speed up its deliveries and reduce its costs. We would expect that this would

raise the demand for existing shares of the stock, causing the price to rise.

If the government's expenditures exceeded its receipts, it would likely

sell bonds directly to the public.

We associate the term debt finance with

the bond market, and we associate the term equity finance with the stock market

Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds

the city's high credit rating and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply.

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,

there is a shortage and the interest rate is below the equilibrium level

If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate

would be lower and the equilibrium quantity of loanable funds would be higher