Econ Chapter 14 Practice Exam
If Table 12.2 represents all the investments available to the economy, the interest rate is 6 percent, what will be the level of investment in the economy?
$200
If Table 12.2 represents all the investments available to the economy, the interest rate is 4.5 percent, what will be the level of investment in the economy?
$300
If in a closed economy real GDP is $30 billion, consumption is $20 billion, and government purchases are $5 billion, what is total savings in the economy?
$5 billion
Refer to Figure 9-1. If the real interest rate is 4%, then savings is equal to $________ million, investment is equal to $_______, and the equilibrium quantity of loanable funds is equal to $________ million.
120; 120; 120
Refer to Figure 9-2. Which of the following is consistent with the graph depicted above?
A recession decreases the profitability of new investment spending
Which of the following actions is considered as "saving" from a macroeconomic perspective?
All of the above
Which of the following would increase public saving (other things equal)?
All of the above would increase public saving
Consider the following actions and determine whether each is a source of "saving", "consumption", or "investment" from a macroeconomic perspective: I. Google issues new bonds. II. Janet buys a new bond issued by Google. III. Janet buys a new computer.
I is investment, II is saving, and III is consumption
Refer to Figure 10-4. As we move from the initial equilibrium to the final equilibrium, which of the following occurs?
More than one of the above
Consider a technological advance which makes capital more productive. In the loanable funds framework, this will lead to an increase in the equilibrium quantity of savings. Which of the following best explains this increase?
The demand for loanable funds shifts to the right, putting upward pressure on the real interest rate. This higher real interest rate causes the quantity of loanable funds supplied to increase.
Refer to Figure 9-1. The loanable funds market is in equilibrium, as shown in the figure above. An increase in business confidence about the future could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?
The real interest rate is 5 percent, and the quantity of loanable funs is $150 million.
Which of the following policies/events results in a decrease in the equilibrium quantity of savings?
The uncertainty of savers about the future decreases
Which of the following would definitely increase public savings in the economy?
a combination of higher taxes and lower government spending
Which of the following would you expect to increase the equilibrium interest rate?
a decrease in the percentage of income that households save
Which of the following would you expect to decrease the equilibrium interest rate?
a decrease in the profitability of investment projects firms are considering
A stock is:
a financial asset that represents partial ownership of a company
In a closed economy, national savings is:
all of these are true
Which of the following would increase public saving (other things equal)?
an increase in taxes
The issuer of a bond is a _______ and the purchaser of a bond is a _____.
borrower; lender
In comparison to a government that runs a balanced budget, when the government runs a budget deficit,
business investment will fall
If income is equal to total spending, then in a closed economy, it is equal to:
consumption plus investment spending
If the expectations about the future don't change at all, then an economic downturn will generally:
decrease savings at a given interest rate and shift the supply curve for loanable funds to the left
Increasing the amount of consumption spending and reducing the amount of savings _______ investment expenditures, and ________ long-run economic growth in the economy.
decreases; decreases
Which of the following is not one of the key services provided by the financial system?
decreasing taxes
Refer to Figure 9-1. The loanable funds market is in equilibrium, as shown in the figure above. If the government begins to run a budget deficit, the _______ loanable funds will ______, thereby ______ the equilibrium interest rate.
demand for; rise; increasing
If technological change increases the profitability of new investment for firms, then the _______ curve for loanable funds will shift to the_______ and the equilibrium real interest rate will _______.
demand; right; rise
If the government's budget deficit increases, then the ______ curve for loanable funds will shift to the _______ and the equilibrium interest rate will _______.
demand; right; rise
The fact that there are fewer and fewer potential investments that will generate returns high enough to make the cost of paying back a loan worthwhile is reflected in the:
downward-slope of the demand curve in the market for loanable funds.
An example of a buyer in a financial market would be:
families buying new houses
A financial market is where people trade:
future claims on funds or goods
In financial markets, sellers are people who:
have cash on hand and are willing to let others use it, for a price.
A net capital inflow occurs in open economics where investment is:
higher than national savings
If the demand for loanable funds increase at the same time that the supply of loanable funds increases, then which of the following will happen with certainty?
increase in the equilibrium quantity of loanable funds
If the government changed the tax code in a way that simultaneously increased the profitability of investment spending and reduced the incentive to save, then which of the following will happen with certainty?
increase in the real interest rate
The portion of income that is spent on productive inputs, such as factories, machinery, and inventories, is called:
investment
You buy a bond issued by General Mills Corporation. You are the ______ and General Mills is the ______.
lender; borrower
Which model shows us the interaction of savers and borrowers?
loanable funds model
A bank will charge a higher interest rate the:
longer is the length of the loan, and the higher the risk of repayment
Sarah is able to take out a loan for $5000 for one year at an annual interest of 10 percent. She would use the loan for an investment project. After calculating her return from the project to be $450, Sarah will:
lose $50 on net, and should not take out the loan
In a closed economy, national savings will be:
lower than private savings if the government runs a deficit
A capital outflow occurs when:
money saved domestically is invest in another country
Bonds are a ______ liquid asset than other loans because they ____.
more; are standardized
In general, stocks are _____ risky than bonds, and have a ____ rate of return.
more; higher
Good current economic conditions incent people to save _______, and a good outlook on future economic conditions incent people to save _______.
more; less
The demand for loanable funds has a ______ slope because the lower the interest rate, the _______ number of investment projects are profitable, and the _____ the quantity of loanable funds demanded.
negative; greater; greater
Adverse selection refers to when:
one party to a transaction has more information than the other and transactions occur less frequently due to the information asymmetry.
Public savings in the economy can be increased by
raising taxes
In the market for loanable funds, the law of supply:
reflects that more people will choose to save the higher is the interest rate
The market for loanable funds is a market in which:
savers supply funds to those who want to borrow for their investment spending needs
Saving is like:
selling the right to use your money for a time
The fact that U.S. citizens expect to receive retirement benefits through Social Security and Medicare pushes their:
supply of loanable funds further left than it would otherwise be
Refer to Figure 9-1. The loanable funs market is in equilibrium, as shown in the figure above. Suppose that there is a cultural change in society and people begin to be more frugal than before and thus increase their desire to save money. The ______ loanable funds will ______, thereby _______ the equilibrium interest rate and_______ the equilibrium quantity of loanable funds.
supply of; rise; decreasing; increasing
Which of the following policies/events results in an increase in the equilibrium quantity of loanable funds?
technological progress makes capital more productive
Which of the following policies/events results in an increase in the equilibrium quantity of savings?
the economy enters and expansion making firms more likely to expand their operations
Which of the following would you expect to decrease the equilibrium interest rate?
the interest rate falls
Refer to Figure 9-1. The level of savings comes from ________ curve. The level of investment spending comes from ______ curve.
the supply; the demand
Assuming all else equal, if there is an increase in the interest rate:
there will be a movement up and to the left along the demand for loanable funds curvve
The primary function of a nation's financial system is
to channel the funds saved by savers to those who wish to borrow those funds
