Chapter 7: Saving and Investment Process

The largest category of tax revenue for the federal government is: a. corporate income taxes b. individual income taxes c. social insurance taxes d. borrowing

b. individual income taxes

Select ALL of the following that are examples of personal consumption expenditures (PCE): a. individual expenditures for durable goods b. individual expenditures for nondurable goods c. individual expenditures for services d. gross investments by local governments e. fixed investment in residential and nonresidential structures

(a,b,c) a. individual expenditures for durable goods b. individual expenditures for nondurable goods c. individual expenditures for services

Select ALL of the following statements that were factors that contributed to the 2007-2009 financial crisis? a. The cultural shift that allowed the public to "spend now and pay later"—rather than their parents' or grandparents' philosophy of "save now, spend later" led to increases in consumer debt levels. b. U.S. government officials engaged in efforts to expand home ownership by encouraging lenders to make mortgage loans available to a broader spectrum of individuals. c. Federal fiscal policy also became stimulative, with increased government spending and the passage of tax cuts in 2002. d. The Federal Reserve adopted an expansionary monetary policy characterized by very low interest rates.

(a,b,c,d)

Select ALL of the following that are part of the sum that is Gross Domestic Product: a. personal consumption expenditures b. net exports c. government expenditures d. gross private domestic investment e. personal savings

(a,b,c,d) a. personal consumption expenditures b. net exports c. government expenditures d. gross private domestic investmenta

Select ALL of the following who encouraged individuals to enter into risky mortgages during the 2000's: a. Financial institution lenders b. Conservative financial advisors c. Government-supported agencies d. Mortgage originators e. Government officials

(a,c,d,e) a. Financial institution leaders c. Government-supported agencies d. Mortgage originators e. Government official

Select ALL of the following that occur, in general, during the business cycle, when economic activity is peaking: a. short-term interest rates are lower than long-term interest rates b. unemployment levels are low c. inflation begins to edge higher d. the Fed raises short-term interest rates higher to slow the economy e. interest rates are low because inflation rates are high

(b,c,d) b. unemployment levels are low c. inflation begins to edge higher d. the Fed raises short-term interest rates higher to slow the economy

Select ALL of the following that are not examples of personal consumption expenditures (PCE): a. individual expenditures for durable goods b. individual expenditures for nondurable goods c. individual expenditures for services d. individual savings e. imports

(d,e) d. individual savings e. imports

If personal consumption expenditures are $1 billion, government purchases are $2 billion, gross private domestic investments are $4 billion and net exports are $5 billion, then GDP is: (Pick the closest answer.) a. $12 billion b. $8 billion c. $7 billion d. $2 billion

a. $12 billion GDP = PCE + GE + GPDI + NE = $1b + $2b + $4b + $5b = $12b

If personal consumption expenditures are $8 billion, government purchases are $12 billion, gross private domestic investments are $6 billion, exports are $7 billion, and imports are $5 billion, then GDP is: (Pick the closest answer.) a. $28 billion b. $38 billion c. $26 billion d. $33 billion e. $31 billion

a. $28 billion $8b + $12b + $6b + $7b - $5b = $28b Note: net exports = $7b - $5b = $2b

If personal consumption expenditures are $8 billion, retained earnings are $3 billion, government purchases are $12 billion, federal income taxes are $4 billion, gross private domestic investments are $6 billion, exports are $7 billion, gross dividends are $7 billion, and imports are $5 billion, then GDP is: (Pick the closest answer.) a. $28 billion b. $38 billion c. $26 billion d. $33 billion e. $31 billion f. $42 billion

a. $28 billion GDP = PCE + GE + GPDI + NE $8b + $12b + $6b + $7b - $5b = $28b Note: net exports = $7b - $5b = $2b

A(n) has an interest rate that changes or varies over time with market-determined interest rates on a U.S. Treasury bill or other debt security. a. ARM b. prime mortgage c. subprime mortgage d. fixed-rate mortgage e. none of the above

a. ARM

Which of the following is closely associated with income levels? a. Employment Levels b. Inflation c. Liquidity d. Cost of Living

a. Employment Levels

______________ is the process of pooling and packaging mortgage loans into debt securities. a. Securitization b. Portfolio composition c. A pooled asset loan d. An adjustable-rate mortgage e. none of the above

a. Securitization

Select ALL of the following statements that are true: a. When taxes and general revenues fail to meet expenditures, a budgetary deficit occurs. b. The federal debt is the same thing as the budget deficit. c. Financial assets include ownership of land, buildings, machinery, inventory, commodities, and precious metals. d. The federal government relies primarily on borrowing to support its various expenditure programs.

a. When taxes and general revenues fail to meet expenditures, a budgetary deficit occurs.

The short-term accumulation of financial assets on the part of business corporations: a. are held in short-term financial assets that are safe and liquid b. add to the level of long-term savings of the economy as a whole c. do not enter the monetary stream to fund consumers, government, or other businesses d. are held in the form of long-term obligations of the federal government

a. are held in short-term financial assets that are safe and liquid

Select ALL of the following that are the primary providers of adequate funds to meet investment needs: a. businesses b. the federal government c. individuals d. U.S. Treasury e. state and local governments

a. businesses c. individuals

Which of the following is the most liquid form of savings? a. cash balances b. time deposits c. stocks d. bonds

a. cash balances

Gross Private Domestic Investment (GPDI) includes fixed investment in: a. fixed investment in residential and non-residential structures b. individual expenditures for nondurable goods c. individual expenditures for services d. gross federal investment

a. fixed investment in residential and non-residential structures

Select ALL of the following that are factors that usually influence a person's choice of the medium used for savings: a. liquidity b. degree of safety c. return d. the current discount rate e. the current required reserve ratio

a. liquidity b. degree of safety c. return

When current savings of an economic unit exceed its direct investment in real assets, this is referred to as: a. savings surplus b. savings deficit c. savings neutral d. savings inflation

a. savings surplus

Savings are the accumulation of cash and other financial assets and are generally classified into which of the following two categories? a. voluntary and contractual savings b. primary and secondary savings c. personal and governmental savings d. voluntary and corporate savings

a. voluntary and contractual savings

Which of the following is not a stage in the corporation cycle? a. Start-up stage b. Capital formation stage c. Rapid growth stage d. Survival stage e. Maturity Stage

b. Capital formation stage

Which of the following statements is false? a. Factors affecting the amount of savings include: levels of income, economic expectations, cyclical influences, and the life stage of the individual saver. b. Gross savings are the profits remaining after tax, and in the case of corporations, after the payment of cash dividends to stockholders. c. Voluntary savings are financial assets set aside for use in the future. d. After the Civil War, the American family took over the function of providing savings for the capital formation process.

b. Gross savings are the profits remaining after tax, and in the case of corporations, after the payment of cash dividends to stockholders.

Typically the largest category of federal budget outlays is a. national defense b. Medicare, social security, and other retirement c. Interest on the federal debt d. international affairs

b. Medicare, social security, and other retirement

The accumulation of reserves in insurance and pension funds is referred to as what type of savings? a. voluntary savings b. contractual savings c. real savings d. savings surplus

b. contractual savings

If individuals believe their income will decrease in the near future, they most likely will _____________ their spending. a. eliminate b. curtail c. increase d. double e. not change

b. curtail

All else the same, a trade deficit: a. increases GDP b. decreases GDP c. has no impact on GDP d. increases the national debt

b. decreases GDP

When current savings of an economic unit exceed its direct investment in real assets, a. more funds are needed by the economic unit b. funds can be made available to a savings deficit unit c. interest rates will rise d. the firm has undistributed profits

b. funds can be made available to a savings deficit unit

The four major factors which influence the total amount of savings in any given period: a. income level, economic expectations, the startup stage, and the rapid growth stage b. income level, economic expectations, cyclical influences, and the life stage of the individual saver c. income level, interest rates, and the life stage cycle of the individual saver, and economic expectations d. economic expectations, interest rates, the startup stage, and the rapid growth stage

b. income level, economic expectations, cyclical influences, and the life stage of the individual saver

The personal savings rate is a. personal income - personal current taxes - personal outlays b. personal savings as a percentage of disposable personal income c. personal income + personal current taxes + personal outlays d. personal savings as a percentage of personal income

b. personal savings as a percentage of disposable personal income

The personal savings rate is calculated as: a. personal savings divided by personal outlays b. personal savings divided by disposable personal income c. disposable personal income divided by personal outlays d. personal income divided by personal outlays e. personal savings divided by personal income

b. personal savings divided by disposable personal income

A(n) _______________ mortgage is a home loan made to a borrower with a relatively high credit score indicating a relatively high likelihood that loan payments will be made when due. a. ARM b. prime c. subprime d. fixed-rate e. none of the above

b. prime

The first two life stages of a typical corporation are the: a. startup stage and rapid growth stage b. startup stage and survival stage c. survival stage and maturity stage d. maturity stage and rapid growth stage

b. startup stage and survival stage

A(n) _______________ mortgage is a home loan made to a borrower with a relatively poor credit score indicating the likelihood that loan payments might be missed when due. a. adjustable rate b. subprime c. credit swap d. prime e. none of the above

b. subprime

Profits remaining after taxes and after a corporation pays dividends to stockholders is referred to as a. depreciation b. undistributed profits (retained earnings) c. short-term working capital d. contractual savings

b. undistributed profits (retained earnings)

If personal consumption expenditures are $6 billion, government purchases are $10 billion, gross private domestic investments are $4 billion and net exports are negative $3 billion, then GDP is: a. $23 billion b. $20 billion c. $17 billion d. $16 billion

c. $17 billion GDP = PCE + GE + GPDI + NE = $6b + $10b + $4b - $3b = $17b

Which of the following is not a stage in the individual savings life cycle? a. Career starting/family creating b. Formative/education developing c. Death planning d. Retirement enjoying e. Wealth building

c. Death planning

Capital market securities include all of the following EXCEPT: a. Corporate bond b. Treasury bond c. Negotiable certificate of deposit d. Common stock e. Municipal bond

c. Negotiable certificate of deposit

Which of the following statements is correct? a. As levels of income decrease and individuals try to maintain their present standard of living, the proportion of their consumption spending decreases and total savings increases. b. When economic activity is peaking, short-term interest rates are lower than long-term interest rates. c. Public borrowing by government is a relatively modern development. d. On the whole, income levels have no association with levels of employment. e. If individuals believe their incomes will increase in the near future, they will curtail their spending to establish a reserve for the expected period of high income.

c. Public borrowing by government is a relatively modern development.

Estimates of "using up" plant and equipment for business purposes are called a. undistributed profits b. gross capital formations c. depreciation d. dissaving

c. depreciation

Which of the following expenditures typically accounts for the largest part of the federal budget outlays? a. national defense b. interest on debt c. direct benefits to individuals d. law enforcement e. general government

c. direct benefits to individuals

Which of the following usually does not influence personal choice of savings medium? a. Liquidity b. Degree of Safety c. Return d. Government spending on social security

d. Government spending on social security

A saver who chooses securities as a savings medium and desires maximum safety of principal buys: a. public utility stocks b. corporate stocks c. high-grade corporate bonds d. Treasury bonds

d. Treasury bonds

Which of the following factors usually influence a person's choice of savings medium? a. liquidity b. degree of safety c. return d. all of the above

d. all of the above (liquidity, degree of safety, return)

The primary factors that influence the amount of savings in any given period include all of the following EXCEPT: a. levels of income b. economic expectations c. cyclical influences d. all of the above are factors that influence savings

d. all of the above are factors that influence savings (levels of income, economic expectations, cyclical influences)

The life stages of an individual saver include all of the following EXCEPT: a. the formative/education developing stage b. the career earning/family creating stage c. the wealth building stage d. all of the above are life stages of savers

d. all of the above are life stages of savers

Motivations for individuals to deposit money into a savings account include: a. safety of principal b. return on investment c. liquidity d. all the above e. none of the above

d. all the above (safety of principal, return on investment, liquidity)

Which of the following is (are) typically a savings deficit unit? a. businesses b. government c. individuals d. both a and b

d. both a and b (businesses, government)

Capital formation refers to the: a. total accumulation of monetary savings in the nation b. distribution of savings among thrift institutions c. total of equity accounts with business corporations d. creation of physical productive facilities

d. creation of physical productive facilities

A(n) _______________ mortgage typically has a fixed interest rate and constant monthly payments over the life of the loan. a. ARM b. prime c. subprime d. fixed-rate e. none of the above

d. fixed-rate

Until the end of the nineteenth century, contributed the most to funding to developments in public transportation. a. investment banks b. commercial banks c. mutual funds d. government units

d. government units

Which of the following categories is not considered to be one of the basic economic units in the U.S. financial system? a. business firms b. individuals c. governments d. not-for-profit organizations

d. not-for-profit organizations

Greater potential savings would result from a(n): a. age distribution shift to more teenagers b. shift to more elderly people in the total population c. shift to more young married couples d. shift to more middle-aged families

d. shift to more middle-aged families

The life stages of an individual saver include all of the following EXCEPT: a. the formative/education developing stage b. the career earning/family creating stage c. the wealth building stage d. the tax minimizing stage

d. the tax minimizing stage

Which of the following factors does not affect savings? a. Levels of Income b. Economic expectations c. Cyclical influences d. Life stage of the individual or corporation e. Inflation rate

e. Inflation rate

The largest category of tax revenue for the federal government is: a. corporate income taxes b. foreign income taxes c. government oil revenues d. military weapon sales e. none of the above

e. none of the above

The process of ______________ which is the process of pooling and packaging mortgage loans into debt securities resulted in the creation of ______________. a. securitization, pooled asset loans b. portfolio composition, mortgage backed securities c. issuing mortgage backed securities, securitization d. specialization, mortgage backed securities e. none of the above

e. none of the above