Macro chapter 8

1. We associate the term debt finance with a. the bond market, and we associate the term equity finance with the stock market. b. the stock market, and we associate the term equity finance with the bond market. c. financial intermediaries, and we associate the term equity finance with financial markets. d. financial markets, and we associate the term equity finance with financial intermediaries.

A

3. Suppose the city of Des Moines has a high credit rating, and so when Des Moines borrows funds by selling bonds, thecity's high credit rating a. and the tax status of municipal bonds both contribute to a lower interest rate than would otherwise apply .b. and the tax status of municipal bonds both contribute to a higher interest rate than would otherwise apply. c. contributes to a lower interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a higher interest rate than would otherwise apply. d. contributes to a higher interest rate than would otherwise apply, while the tax status of municipal bonds contributes to a lower interest rate than would otherwise apply.

A

14. The country of Cedarland does not trade with any other country. Its GDP is $17 billion. Its government purchases $5billion worth of goods and services each year and collects $6 billion in net tax revenues. Private saving in Cedarland is $5billion. For Cedarland, investment is a. $6 billion and consumption is $7 billion. b. $6 billion and consumption is $6 billion. c. $7 billion and consumption is $7 billion. d. $7 billion and consumption is $6 billion.

B

18. Which of the following is an example of crowding out? a. A decrease in the rate of growth of the money supply which causes a decrease in Real GDP. b. A budget deficit causes an increase in interest rates, which causes a decrease in investment spending. c. An increase in tariffs which causes a decrease in imports. d. A decrease in government housing subsidies which causes an increase in private spending on housing.

B

2. Long-term bonds area. riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates A. on short-term bonds. b. riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates onshort-term bonds. c. less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rateson short-term bonds. d. less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rateson short-term bonds.

B

7. A bond buyer is a a. saver. Long-term bonds have less risk than short-term bonds. b. saver. Long-term bonds have more risk than short-term bonds. c. borrower. Long-term bonds have less risk than short-term bonds. d. borrower. Long-term bonds have more risk than short-term bonds.

B

GDP $7.3 trillionConsumer Spending $5.2 trillionTaxes Minus Transfers $1.1 trillionGovernment Purchases $0.7 trillion 11. Refer to Table 26-1. The quantity of private saving is a. $2.1 trillion. b. $1 trillion. c. $1.4 trillion. d. $6.2 trillion.

B

15. In national income accounting, we use which of the following pairs of terms interchangeably? a. "Investment" and "private saving" b. "Investment" and "purchases of stocks and bonds" c. "Saving" and "national saving" d. "Public saving" and "government tax revenue minus government spending"

D

16. For a closed economy, GDP is $31 trillion, consumption is $7 trillion, taxes are $3.0 trillion and the government runsa surplus of $4 trillion. What are private saving and national saving? a. $21.0 trillion and $25.0 trillion, respectively b. $25.0 trillion and $21.0 trillion, respectively c. −$21.0 trillion and −$25.0 trillion, respectively d. −$21.0 trillion and $25.0 trillion, respectively

A

17. Crowding out results in a decrease in a. transfer payments. b. defense spending. c. private investment spending. d. government spending.

C

6. Suppose the government finds a major defect in one of a company's products and demands that the product be taken off the market. We would expect that the a. supply of existing shares of the stock and the price will both rise. b. supply of existing shares of the stock and the price will both fall. c. demand for existing shares of the stock and the price will both rise. d. demand for existing shares of the stock and the price will both fall.

D

8. Suppose private saving in a closed economy is $21b and investment is $8b. a. National saving must equal $21b. b. Public saving must equal $13b. c. The government budget surplus must equal $13b. d. The government budget deficit must equal $13b.

D

12. Katleen is considering expanding her dress shop. If interest rates rise she is 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

13. In a closed economy, if Y, C, and T remained the same, a decrease in G would a. reduce private saving and public saving. b. increase private saving but not public saving. c. increase public saving but not private saving. d. increase neither private nor public saving.

C

19. If the structural deficit is $80 billion and the cyclical deficit is $150 billion, it follows that the __________ is__________ billion. a. public debt; $230 b. total budget deficit; $70 c. total budget deficit; $230 d. net public debt; $70

C

21. If the federal government runs a budget _______, then the national debt becomes __________. a. surplus, larger b. deficit, smaller c. surplus, smaller d. deficit, the size of the deficit

C

5. Which of the following bonds has the highest interest rate? a. A high credit risk and a short term b. A low credit risk and a short term c. A long term and a high credit risk d. A long term and a low credit risk

C

9. Suppose that in a closed economy GDP is equal to $33,000, consumption equal to $18,000, government purchasesequal $6,500, and taxes equal $6,750. What are private saving, public saving, and national saving? a. $250, $8,250, and $8,500, respectively b. $15,000, $26,250, and $13,250, respectively c. $8,250, $250, and $8,500, respectively d. $26,250, $15,000, and $13,250, respectively

C

GDP $170,000Net Tax Revenue $23,000Government Purchases $31,000National Saving $17,00010. Refer to Scenario 26-1. This economy's government is running a budget a. surplus of $8,000. b. deficit of $6,000. c. deficit of $8,000. d. surplus of $6,000.

C

4. You are thinking of buying a bond from Bluestone Corporation. You know that this bond is long term and you know that Bluestone's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct? a. The longer term would tend to make the interest rate on the bond issued by Bluestone higher, while the higher risk would tend to make the interest rate lower. b. The longer term would tend to make the interest rate on the bond issued by Bluestone lower, while the higher risk would tend to make the interest rate higher. c. Both the longer term and the higher risk would tend to make the interest rate lower on the bond issued by Bluestone. d. Both the longer term and the higher risk would tend to make the interest rate higher on the bond issued by Bluestone

D