Chapter 8: Sample test ECON 100

Is the government's budget policy contributing to growth in this country or harming it. Why?

It is harming growth because public saving is negative, so less is available for investment.

If you are to buy both short-and-long term bonds from Fly-by-Night, form which bonds would you demand a higher rate of return:

Long term becuse you may need to sell the long term bonds at a depressed price prior to maturity.

An increase in budget deficit is

a decrease in public saving.

What is the value of public saving?

=T-G =1000-1200 -200billion

What is the value of private saving?

=Y-T-C =6000-1000-4000 =1000billion

What is the value of saving and investment?

=Y-T-C + T-G =(6000-1000-4000) + (1000-1200) = 800 billion

National saving (or just saving) is equal to

a. private saving + public saving

If government spending exceeds tax collections

b. there is a budget deficit.

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

crowdinfg out

If the supply of loanable funds is very inelastic (steep), which policy would likely increase saving and investment the most?

A reduction in the budget deficit.

A financial intermediary is a middleperson between a. labor unions and firms b. husband wives c. buyers and sellers d. borrowers and lenders

d. borrowers and lenders

Which of the following sets of government policies is the most growth oriented?

Lower taxes on the returns to saving, provide investment tax credits, and lower deficit.

An increase in the budget deficit that causes the government to increase its borrowing

Shift the supply of loanble funds to the left.

Credit risk refer to bonds. a. term to maturity b. probability to default c. tax treatment d. dividend e. price-earning ratio

b. probability default

Investment is

b. the purchase of capital equipment and structures.

If Americans become more thrifty, we would expect

b. the supply of loanable funds to shift and the real interest to fall.

If the public consumes $100 billion less and the government purchase $100 billion more(other things unchanging), which of the following statements is true?

c. Saving is unchanged.

Which of the following is an example of equity finance? a. corporate bonds b. municipal bonds c. stocks d. bank loans e. all of the above are equity finance

c. stocks

Which of the following statement is true a. A stock index is a directory used to locate information about selected stocks. b. Longer- term bonds tend to pay less interest than a shorter-term bonds c. Municipal bonds pay less interest than comparable corporate bonds. d. Mutual funds are riskier than a single purchases because of the performance of so many different firms can affect the return of a mutual fund.

d. Mutual funds are riskier than a single purchases becuase of the performance of so many different firms can affect the return of a mutual fund.

Which of the following financial market securities would likely pay the highest interest rate?

d. a bond issue by a start-up company.

An increase in the budget deficit will

raise the real interest rate and decrease the quantity of loanble funds demanded for investment.

If Americans become less concerned with future and save less at each real interest rate,

real interest rates rise and investment falls.

An increase in the budget surplus

shift the supply loanable funds to the right and reduces the real interest rate.

If the government increases investment tax credits and reduces taxes on the return to saving at the same time.

the impact on the real interest rate is undeterminate.

If GDP=$1,000, C=$600, Taxes=$100, and Government=$200, how much is saving and investment?

y= 1000 c= 600 g= 200 1000-600-200=200 I= 200