Chapter Quiz (Ch 13)

If Americans become more thrifty, we would expect

the supply of loanable funds to shift to the right and the real interest rate to fall

If government spending exceeds tax collections,

there is a budget deficit

An increase in the budget deficit is

a decrease in public saving

National saving (or just saving) is equal to

private saving + public saving

Credit risk refers to a bond's

probability of default

Which of the following is an example of equity finance?

Stock

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

a. real interest rates rise and investment falls.

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

b. a reduction in the budget deficit

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

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

An increase in the budget deficit will

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

If GDP = $1,000, consumption = $600, taxes = $100, and government purchases = $200, how much is saving and investment?

b. saving = $200, investment = $200

A financial intermediary is a middleperson between

borrowers and lenders

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

c. Saving is unchanged.

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

c. a bond issued by a start-up company

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

crowding out

Which of the following statements is true?

d. Municipal bonds pay less interest than comparable corporate bonds.

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

d. shifts the supply of loanable funds to the left.

Investment is

d. the purchase of capital equipment and structures.

An increase in the budget surplus

shifts the supply of 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 indeterminate