Chapter 4 Macro-Economics

If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal interest rate is Select one: a. 5 percent. b. 1 percent. c. 1.5 percent. d. 0.67 percent.

a. 5 percent.

What would happen in the market for loanable funds if the government were to increase the tax on interest income? Select one: a. Interest rates would rise. b. Interest rates would be unaffected. c. Interest rates would fall. d. The effect on the interest rate is uncertain.

a. Interest rates would rise.

Which of the following is a financial intermediary? Select one: a. a mutual fund b. the stock market c. a U.S. government bond d. a wealthy individual who regularly buys and holds large quantities of government bonds

a. a mutual fund

Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000 Refer to Scenario 1. This economy's government is running a Select one: a. budget surplus of $3,000 b. budget surplus of $6,000 c. budget deficit of $3,000 d. budget deficit of $6,000

a. budget surplus of $3,000

Which of the following lists correctly identifies the four expenditure categories of GDP? Select one: a. consumption, government purchases, investment, net exports b. consumption, investment, depreciation, net exports c. consumption, saving, investment, depreciation d. consumption, government purchases, investment, savings

a. consumption, government purchases, investment, net exports

If Congress instituted an investment tax credit, the interest rate would Select one: a. rise and saving would rise. b. fall and saving would fall. c. rise and saving would fall. d. fall and saving would rise.

a. rise and saving would rise.

The supply of loanable funds would shift to the right if either Select one: a. tax reforms encouraged greater saving or the budget deficit became smaller. b. tax reforms encouraged greater saving or investment tax credits were increased. c. the budget deficit became larger or investment tax credits were increased. d. the budget deficit became larger or tax reforms discouraged saving.

a. tax reforms encouraged greater saving or the budget deficit became smaller.

Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. GDP $8.7 trillion Consumption Spending $3.2 trillion Taxes Net of Transfers $2.7 trillion Government Purchases $3.0 trillion Select one: a. $2.2 trillion b. $2.5 trillion c. $3.9 trillion d. $5.2 trillion

b. $2.5 trillion

Figure 1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. {Supply is to the right, demand is the same} Refer to Figure 1. Which of the following events would shift the supply curve from S1 to S2? Select one: a. In response to tax reform, firms are encouraged to invest more than they previously invested. b. In response to tax reform, households are encouraged to save more than they previously saved. c. Government goes from running a balanced budget to running a budget deficit. d. Any of the above events would shift the supply curve from S1 to S2.

b. In response to tax reform, households are encouraged to save more than they previously saved.

Figure 2. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. {Demand is to the right, supply is the same} Refer to Figure 2. Which of the following events could explain a shift of the demand-for-loanable-funds curve from D1 to D2? Select one: a. The tax code is reformed to encourage greater saving. b. The tax code is reformed to encourage greater investment. c. The government starts running a budget deficit. d. The government starts running a budget surplus.

b. The tax code is reformed to encourage greater investment.

Figure 1. The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. {Supply is to the right, demand is the same} Refer to Figure 1. What is measured along the vertical axis of the graph? Select one: a. the nominal interest rate b. the real interest rate c. the quantity of investment d. the quantity of saving

b. the real interest rate

Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000 Refer to Scenario 1. For this economy, investment amounts to Select one: a. $4,000 b. $9,000 c. $12,000 d. $16,000

c. $12,000

Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000 Refer to Scenario 1. For this economy, taxes amount to Select one: a. $28,000 b. $38,000 c. $41,000 d. $44,000

c. $41,000

Kathleen is considering expanding her dress shop. If interest rates rise she is Select one: a. less likely to expand. This illustrates why the supply of loanable funds slopes downward. b. more likely to expand. This illustrates why the supply of loanable funds slopes upward. c. less likely to expand. This illustrates why the demand for loanable funds slopes downward. d. more likely to expand. This illustrates why the demand for loanable funds slopes upward.

c. less likely to expand. This illustrates why the demand for loanable funds slopes downward.

In a closed economy, T = $5,000, S = $11,000, C = $50,000, and the government is running a budget deficit of $1,000. Then Select one: a. private saving = $10,000 and GDP = $54,000 b. private saving = $10,000 and GDP = $58,000 c. private saving = $12,000 and GDP = $67,000 d. private saving = $12,000 and GDP = $72,000

c. private saving = $12,000 and GDP = $67,000

A larger budget deficit Select one: a. raises the interest rate and investment. b. reduces the interest rate and investment. c. raises the interest rate and reduces investment. d. reduces the interest rate and raises investment.

c. raises the interest rate and reduces investment.

Scenario 1. Assume the following information for an imaginary, closed economy. GDP = $120,000; consumption = $70,000; private saving = $9,000; national saving = $12,000 Refer to Scenario 1. For this economy, government purchases amount to Select one: a. $12,000 b. $18,000 c. $28,000 d. $38,000

d. $38,000

Figure 2. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. {Demand is to the right, supply is the same} Refer to Figure 2. The position and/or slope of the Supply curve are influenced by Select one: a. the level of public saving. b. the level of national saving. c. decisions made by people who have extra income they want to save and lend out. d. All of the above are correct.

d. All of the above are correct.

In a closed economy, GDP is equal to 11,000, taxes are equal to 1,500, consumption equals 7,500, and government purchases equal 2,000. What is national saving? Select one: a. -500 b. 0 c. 2000 d. None of the above is correct

d. None of the above is correct

The primary function of the financial system is to Select one: a. keep interest rates low b. provide expert advice to savers and investors c. match one person's consumption expenditures with another person's capital expenditures d. match one person's saving with another person's investment

d. match one person's saving with another person's investment