Econ 8
If the business community becomes more optimistic about the profitability of capital, the ________ curve for loanable funds would shift, driving the equilibrium interest rate ________. supply, up supply, down demand, up demand, down
demand, up The more profitable capital becomes, the more firms are rewarded for borrowing money to invest in new capital. Thus if capital is perceived as more profitable, the demand for loanable funds would shift to the right, driving the equilibrium interest rate up.
From 2008 to 2012, the ratio of government debt to GDP in the United States increased markedly. decreased markedly. was stable at a historically high level. was stable at a historically low level.
increased markedly As the economy was experiencing a financial crisis and deep recession in 2008, the debt-to-GDP ratio in the United States increased markedly.
If a popular TV show on personal finance convinces more Americans about the importance of saving for retirement, the ________ curve for loanable funds would shift, driving the equilibrium interest rate ________. supply, up supply, down demand, up demand, down
supply, down The equilibrium interest rate is determined by the intersection of the supply and demand curves in the market for loanable funds. Saving makes up the supply of loanable funds; therefore, an increase in saving shifts the supply curve for loanable funds to the right. This drives the equilibrium interest rate down.
A closed economy has income of $1,000, government spending of $200, taxes of $150, and investment of $250. What is private saving? $100 $200 $300 $400
$300 In a closed economy (that is, an economy that does not trade with the rest of the world), saving must be equal to investment, S=I . Saving can be broken down into the income that is left after subtracting consumption and government spending, or Y-C-G . Private saving is equal to income minus consumption and taxes, with public saving equal to taxes minus government spending; therefore, total saving can be rewritten as (Y-C-T) + (T-G) . To solve for private saving, set total saving equal to investment, and substitute the value of public saving: S=I Y-C-G = 250 (Y-C-T) + (T-G) = 250 Private saving + (150-200) = 250 Private saving + (-50) = 250 Private saving = 300
Nina wants to buy and operate an ice cream truck but doesn't have the financial resources to start the business. She borrows $5,000 from her friend Max, to whom she promises an interest rate of 7 percent, and gets another $10,000 from her friend David, to whom she promises a third of her profits. What best describes this situation? Max is a stockholder, and Nina is a bondholder. Max is a stockholder, and David is a bondholder. David is a stockholder, and Nina is a bondholder. David is a stockholder, and Max is a bondholder.
David is a stockholder, and Max is a bondholder. Stockholders share in the profits of a corporation, offering both higher risk and potentially higher reward than bonds. Bondholders, on the other hand, receive a fixed interest payment, regardless of the company's profitability.
If the government collects more in tax revenue than it spends, and households consume more than they get in after-tax income, then private and public saving are both positive. private and public saving are both negative. private saving is positive, but public saving is negative. private saving is negative, but public saving is positive.
private saving is negative, but public saving is positive. Private saving is the amount of income households have left after paying their taxes and paying for their consumption, or Y-T-C. Public saving is the amount of tax revenue that the government has left after paying for its spending, T-G . When consumption is greater than after-tax income ( C > Y-T ), private saving is negative; when the government collects more in taxes than it spends ( T>G ), public saving is positive.