Macro Ch 13
The quantity supplied of loanable fund is greater if real rates are higher
true
Institution that collects deposits and makes loans
Bank
Certificate of indebtedness or IOU
Bond
A shortfall of tax revenue relative to government spending causing public saving to be negative
Budget deficit
An excess of tax revenue over government spending causing public saving to be positive
Budget surplus
An economy with no international transactions
Closed economy
A decrease in investment as a result of government borrowing
Crowding out
The amount of borrowing for investment desired at each real interest rate
Demand for loanable funds
Financial institutions through which savers can indirectly lend to borrowers
Financial intermediaries
financial institutions through which savers can directly lend to borrowers
Financial markets
The group of institutions in the economy that help match borrowers and lenders
Financial system
The accumulation of past budget deficits
Government debt
Expenditures on capital equipment and structures
Investment
The market in which those who want to save supply funds and those who want to borrow to invest demand funds
Market for loanable funds
Spendable asset such as a checking deposit
Media of exchange
Institution that sells shares and uses the proceeds to by a diversified portfolio
Mutual fund
Th income that remains after consumption expenditures and government purchases
National saving (saving)
The income that remains after consumption expinditure and taxes
Private saving
The tax revenue that the government has left after paying for its spending
Public saving
Certificate of ownership of a small portion of a large firm
Stock
The amount of saving made available for lending at each resting interest rate
Supply of loanable funds
An increase in the budget deficit is a) a decrease in public saving b) an increase in public saving c) a decrease in private saving d) an increase in private saving e) none of the above
a) a decrease in public saving
Which of the following sets of government policies is the most growth oriented? a) lower taxes on the returns to saving, provide investment tax credits, and lower the deficit b) lower taxes on the returns to saving, provide investment tax credits, and increase the deficit c) increase taxes on the returns to saving, provide investment tax credits, and lower the deficits d) increase taxes on the returns to saving, provide investment tax credits, and increase the deficit
a) lower taxes on the returns to saving, provide investment tax credits, and lower the deficit
national saving (or just saving) is equal to a) private saving + public saving b) investment + consumption expenditures c) GDP - government purchases d) GDP + consumption expenditures + government purchases e) none of the above
a) private saving + public saving
An increase in the budget deficit will a) raise the real interest rate and decrease the quantity of loanable funds demand for investment b) raise the real interest rate and increase the quantity of loanable funds demand for investment c) lower the real interest rate and decrease the quantity of loanable funds demand for investment d)lower the real interest rate and increase the quantity of loanable funds demand for investment
a) raise the real interest rate and decrease the quantity of loanable funds demand for investment
IF GDP = $1,000, consumption = $600, taxes =$100, and government purchases = $200, how much is saving and investment? a) saving = $200, investment = $200 b) saving = $300, investment = $300 c) saving = $100, investment = $200 d) saving = $200, investment = $100 e) saving = $0, investment = $0
a) saving = $200, investment = $200
If the supply of loanable funds is very inelastic (steep) which of the policy would likely increase saving and investment the most? a) an investment tax credit b) a reduction in the budget deficit c) an increase in the budget deficit d) none of the above
b) a reduction in the budget deficit
Credit risk refers to a bond's a) term to maturity b) probability of default c) tax treatment d) dividend e) price-earnings ratio
b) probability of default
Investment is a) the purchase of stock and bonds b) the purchase of capital equipment and structures c) when we place our saving in the bank d) the purchase of of good services
b) the purchase of capital equipment and structures
If Americans become more thrifty, we would expect a) the supply of loanable funds to shift to the right and the real interest rate to rise b) the supply of loanable fund to shift to the right and the real interest rate to fall c) the demand for loanable funds to shift to the right and the real interest to rise d) the demand for loanable funds to shift to the right and the real interest rate to fall
b) the supply of loanable fund to shift to the right and the real interest rate to fall
If government spending exceeds tax collections, a) there is a budget surplus b) there is a budget deficit c) private saving is positive d) public saving is positive e) none of the above is true
b) there is a budget deficit
Which of the following statements is true? a) A stock index is a directory used to locate information above selected stocks b) Longer-terms bonds tends to pay less interest than shorter-term bonds c) Municipal bonds pay less interest than comparable corporate bonds d) Mutual funds are riskier than single stock purchases because the performance of so many different firms can affect the return of a mutual fund
c) Municipal bonds pay less interest than comparable corporate bonds
If Americans become less concerned with the future and save less at each real interest rate, a) real interest rates fall, investment falls b) real interest rates fall, and investment rises c) real interest rates rise, investment falls d) real interest rates rise, and investment rises
c) real interest rates rise, investment falls
If the public consumes $100 billion less and the government purchases $100 billion more (other things unchanging) , which of the following statements is true? a) There is an increase in saving, and the economy should grow more quickly b) There is a decrease in saving, and the economy should grow more slowly c) saving is unchanged d) there is not enough information to determine what will happen to saving
c) saving is unchanged
An increase in the budget deficit that causes the government to increase its borrowing a) shifts the demand for loanable funds to the right b) shifts the demand for loanable funds to the left c) shifts the supply for loanable funds to the right d) shifts the supply for loanable funds to the left
c) shifts the supply for loanable funds to the right
Which of the following is an example of equity finance? a) corporate bonds b) municipal bonds c) stock d) back loan e) all the above are equity finance
c) stock
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 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
A financial intermediary is middle person between a) labor unions and firms b) husbands and wives c) buyers and sellers d) borrowers and lenders
d) borrowers and lenders
If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of a) equity finance b) the mutual fund effect c) intermediation d) crowding out
d) crowding out
An increase in the budget surplus a) shifts the demand for loanable funds to the right and increases the real interest rate b) shifts the demand for loanable funds to the left and reduces interest rate c) shifts the supply for loanable funds to the right and increases the real interest rate d) shifts the supply for loanable funds to the left and reduces interest rate
d) shifts the supply for loanable funds to the left and reduces interest rate
If the government increases investment tax credits and reduces taxes on the return to saving at the same time, a) the real interest rate should rise b) the real interest rate should fall c) the real interest rate should not change d) the impact on the the real interest rate indeterminate
d) the impact on the the real interest rate indeterminate
If you save money this week and lend it to your roommate to buy food for consumption, your act of personal saving has increased national saving
false; consumption loans do not increase national saving
If the real interest rate in the loanable-funds market is temporarily held above the equilibrium rate, desired borrowing will exceed desired lending and the real interest rte will fall
false; desired lending exceeds desired borrowing
An increase in the budget deficit that causes the government to increase its borrowing shifts the demand for loanable funds to the right
false; it decrease the supply of loanable funds
If the government wanted to increase the rate of growth, it should raise taxes on interest and dividends to shift the supply of loanable funds to the right
false; it should lower taxes on interest and dividends
People who buy stock in a firm have loaned money to the firm
false; stockholders are owners
The financial crisis of 2008 and 2009 began with a sharp economic downturn and a reduction in the overall demand for output
false; the financial crisis began with a decline in real estate prices
When business firms sells a bond, it has engaged in equity finance
false; to sell a bond is to engage in debt finance
A reduction in the budget deficit should shift the supply of loanable funds to the right, lower the real interest rate, and increase quantity demanded of loanable funds
true
In a close economy saving is what remains after consumption expenditures and government purchases
true
In a closed economy, investment is always equal to saving regardless of where the saving came from- public or private sources
true
Investment is the purchase of capital equipment and structures
true
Municipal bonds bonds pay less interest than comparable risk corporate bonds because the interest payments are tax exempt to the bondholder
true
Mutual funds reduce a shareholder's risk by purchasing a diversified portfolio
true
Public saving and the government's budget surplus are the same thing
true