Chapter 10
Most entrepreneurs finance their purchases of real capital using their past saving.
False
Public saving is T - C, while private saving is Y - T - G.
False
Households supply loanable funds because of the
interest income received from the borrowers.
. By definition, government purchases and taxes are zero for a closed economy.
False
. If Congress instituted an investment tax credit, the equilibrium interest rate will decrease and the equilibrium level of investment will increase.
False
If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private saving must amount to $10,000.
False
In a closed economy, investment must be equal to private saving
False
Lenders sell bonds and borrowers buy them
False
Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, tax of $1 billion and government expenditures of $1 billion. Then investment and public saving are both $1 billion.
False
When a firm wants to borrow directly from the public to finance the purchase of new equipment, it does so by selling shares of stock.
False
. Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.
True
. If the the government's budget deficit became larger, the supply for loanable funds would shift leftward
True
. If, for an imaginary closed economy, investment amounts to $10,000 and the government is running a $2,500 deficit, then private saving must amount to $12,500.
True
. Other things the same, the higher the rate of saving and investment in a country, the higher will be the standard of living in the future
True
An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of investment.
True
Corporations receive no proceeds from the resale of their stock
True
National saving is equal to Y - C - G
True
When a corporation experiences financial problems, bondholders are paid before stockholders
True
When the government budget deficit rises, national saving is reduced, interest rates rise, and investment falls.
True
Businesses demand loanable funds because
firms need to borrow funds for new projects, such as building new factories or carrying out new research projects.
