Ch 18

In the national savings and investment identity framework, an inflow of savings from abroad is, by definition, equal to: Select one: a. the trade surplus b. domestic household savings c. private sector investment d. the trade deficit

the trade deficit

Assume an economy has a budget surplus of 1000, private savings of 4000, an investment of 5000. What will be the balance of trade in this economy?

0

If a country's economic data shows private savings of $300 million, government spending of $350 million, tax revenue of $400 million, and a trade surplus of $75 million, then what does investment equal (in $ millions)? Answer:

275

In a country, private savings equals 600, the government budget surplus equals 200, and the trade surplus equals 100. What is the level of private investment in this economy?

700

Imagine an economy in which Ricardian equivalence holds. This economy has a budget deficit of 50, a trade deficit of 20, private savings of 130, and investment of 100. If the budget deficit rises to 70 then __________ all else equal. Select one: a. Investment would fall by 20 b. Trade deficit would increase by 20 c. Private savings would increase by 20

Private savings would increase by 20

If the quantity of financial capital supplied is equal to the quantity of financial capital demanded then, the national savings and investment identity is written as: Select one: a. S + (G - T) = I - (X - M) b. (M - X) - S = (G + T) - I c. S = (X - M) - (G - T) d. S + (M - X) = I + (G - T)

S + (M - X) = I + (G - T)

As budget deficit rises (or budget surplus falls) domestic private investment falls all esle equal. Select one: True False

True

As budget deficit rises (or budget surplus falls) trade deficit rises (or trade surplus falls) all esle equal. Select one: True False

True

If a government's budget deficits are increasing aggregate demand when the economy is already producing near potential GDP, causing a threat of an inflationary increase in price levels, then the central bank may react with: Select one: a. a loose monetary policy b. a contractionary monetary policy c. an expansionary monetary policy d. a discretionary monetary policy

a contractionary monetary policy

When the interest rate in an economy increases, it is likely the result in either: Select one: a. an increase in the government budget surplus or a decrease in its budget deficit b. an increase in the government budget surplus or its budget deficit c. a decrease in the government's budget surplus or an increase in its budget deficit d. a decrease in the government budget surplus or its budget deficit

a decrease in the government's budget surplus or an increase in its budget deficit

Ricardian equivalence means that: Select one: a. changes in investment offset any changes in the government deficit b. changes in exports offset any changes in the government deficit c. changes in imports offset any changes in the government deficit d. changes in private savings offset any changes in the government deficit

changes in private savings offset any changes in the government deficit

If the government initiates an expansionary monetary policy at the same time that its budget deficit decreases, then the interest rate will ______________________. Select one: a. remain unchanged b. increase c. either increase or decrease d. decrease

decrease

An increase in government borrowing can __________. Select one: a. allow private investment to expand b. decrease private investment in physical capital c. cause a substantial decrease in interest rates

decrease private investment in physical capital

As budget deficit rises (or budget surplus falls) private savings falls all esle equal. Select one: True False

false

From a macroeconomic point of view, which of the following is a source of demand for financial capital? Select one: a. government borrowing b. domestic household private savings c. savings by households and firms d. foreign financial investment

government borrowing

If the U.S. shifts from a government budget deficit to a budget surplus then the dollar is likely to depreciate all else equal. Select one: True False

true