Quiz 9
Country Z does not trade with any other country. Its GDP is $18 billion. Its government purchases $3 billion worth of goods and services each year, collects $4 billion in taxes, and provides $2 billion in transfer payments to households. Private saving in Country Z is $5 billion. What is investment in Country Z?
$4 billion
The country of Bienmundo does not trade with any other country. Its GDP is $11 billion, consumption is $7 billion, taxes are $2.5 billion and the government runs a surplus of $1 billion. What are private saving and national saving?
$1.5 billion and $2.5 billion, respectively
In a closed economy investment is $50 trillion and private saving is $40 trillion. What are public saving and national saving?
$10 trillion and $50 trilllion
Fundamentally, the main purpose of the financial system is to ...
coordinate saving and investment.
In the absence of any other changes, a government budget deficit ...
decreases both public and national saving.
Crowding out occurs when ...
investment declines because a budget deficit makes interest rates rise.
According to the definitions of national saving and private saving, if Y, C, and G remained the same, an increase in taxes would ...
leave national saving unchanged and reduce private saving.
The slope of the demand of loanable funds is based on the logic that an increase in interest rates ...
makes investment less attractive.
When the government goes from running a balanced budget to running a budget deficit, ...
national saving decreases, the interest rate rises, and the economy's long-run growth rate is likely to decrease.
The source of the supply for loanable funds is ...
saving, and the source of the demand of loanable funds is investment.
A policy that induces firms to invest more shifts ...
the demand for loanable funds and raises interest rates.
If there is a shortage of loanable funds, then ...
the quantity demanded is greater than the quantity supplied and the interest rate will rise.
Other things the same, a decrease in the interest rate ...
would decrease the quantity of loanable funds supplied.
Which of the following would be included as investment in the GDP accounts?
your neighbor buys new equipment for her dental office
According to the loanable funds model, which of the following events would result in lower interest rates and lower saving?
Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories.
