MAC2

mutual fund

an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds

private saving

the income that a household has left after paying for taxes and consumption

market for loanable funds

the market in which those who wants to save supply funds and those who want to borrow to invest demand funds

catch-up effect

the property whereby countries that start off poor tend to grow more rapidly than countries that start off rich

disminishing returns

the property whereby the benefit from an extra unit of an input declines as the quantity of the input increase

public saving

the tax revenue that government has left after paying for its spending

national saving

the total income in the economy that remains after paying for consumption and government purchases

Saving =

(Y-T-C) + (T-G)

A bond that repays the principal in year 2015 or a bond that repays the principle year 2040

2040 because long-term bonds holders have to wait longer for repayment of principle

An increase in the budget deficit will a.raise the real interest rate and decrease the quantity of loanable funds demanded for investment. b.lower the real interest rate and increase the quantity of loanable funds demanded for investment. c.raise the real interest rate and increase the quantity of loanable funds demanded for investment. d.lower the real interest rate and decrease the quantity of loanable funds demanded for investment.

A

If UK citizens become less concerned with the future and save less at each real interest rate, a.real interest rates rise and investment falls. b.real interest rates rise and investment rises. c.real interest rates fall and investment rises. d.real interest rates fall and investment falls.

A

If the supply of loanable funds is very inelastic (steep), which policy would likely increase saving and investment the most? a.a reduction in the budget deficit b.an increase in the budget deficit c.an investment tax credit d.none of these answers

A

Credit risk refer to a bond's A. Term to maturity B. Probability of default C. Tax treatment D. dividend E. Price-earnings ratio

B

Which of the following sets of government policy is the most growth oriented? a. lower taxes on the returns to saving, provide investment tax credits, and lower the deficit b. lower taxes on the returns to saving, provide investment tax credits, and increase the deficit c. increase lower taxes on the returns to saving, provide investment tax credits, and lower the deficit d. increase lower taxes on the returns to saving, provide investment tax credits, and increase the deficit

A

Which bond would you expect to pay a higher interest rate a. A bond of the U.S. government or a bond of an East European government?

A bond of an EEG because the U.S government is considered a safe credit risk

bond

a certificate of indebtedness

If Americans become more thrifty, we would expect a. The supply of loanable funds to shift to the right and the real interest rate to rise. b. The supply of loanable funds to shift to the right and the real interest rate to fall. c. The demand for loanable funds to shift to the right and the real interest rate to rise. d. The demand for loanable funds to shift to the right and the real interest rate to fall.

B

If government speding exceeds tax collections A. Budget surplus B. Budget deficit

B

Why would removing a trade restriction lead to more rapid economic growth

Because trade has similar effects as discovering new technology, which improves productivity and living standard

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of a.intermediation. b.equity finance. c.crowding out. d.the investment fund effect.

C

If the government increases investment tax credits and reduces taxes on the return to saving at the same time, a.the real interest rate should fall. b.the real interest rate should rise. c.the impact on the real interest rate is indeterminate. d.the real interest rate should not change.

C

If the public consumes $100 billion less and the government purchases $100 billion more (other things unchanging), which of the following statement is true? A. There is an increase in saving, and the economy should grow more quickly. B. There is a decrease in saving, and the economy should grow more slowly. C. Saving is unchanged. D. There is not enough information to determine what will happen to saving.

C

Which of the following statements is true? A. A stock index is a directory used to locate information about selected stock B. Longer-term bonds tend to pay less interest than shorter-term bonds C. Municipal bonds pay less interest than comparable corporate bonds.

C

An increase in the budget deficit is a.an increase in public saving. b.a decrease in private saving. c.none of these answers. d.a decrease in public saving. e.an increase in private saving.

D

stock

a claim to partial ownership in a firm

An increase in the budget surplus a.shifts the supply of loanable funds to the left and increases the real interest rate. b.shifts the supply of loanable funds to the right and reduces the real interest rate. c.shifts the demand for loanable funds to the right and increases the real interest rate. d.shifts the demand for loanable funds to the left and reduces the real interest rate.

D

An increase in the budget deficit that causes the government to increase its borrowing a.shifts the supply of loanable funds to the right. b.shifts the demand for loanable funds to the left. c.shifts the demand for loanable funds to the right. d.shifts the supply of loanable funds to the left.

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

Rate of population growth influences the level of GDP per person (how? 2)

Diluting the capital stock: Bigger population = higher L = lower K/L = lower productivity & living standards. This applies to K and H. Fast population growth = more children = greater strain on educational system. Countries with fast growth tend to have lower educational attainment. To combat this, many countries use policy to control population growth (China's one child per family law)

A bond issued by the federal government or a bond issued by New York State

Federal. Because when a state or local government issue bonds, the bond owners are not required to pay federal income tax on the interest income

What deter a policymaker from trying to raise the rate of saving?

Future is unpredictable People can't enjoy to invest on future consumption

How higher saving leads to a higher standard of living

Higher saving --> physical capital increases --> more investment --> profit --> higher standard of living

What is investment? How is it related to national saving/

Investment is a purchase of new capital. Saving must be equal to investment

Describe a change in the tax code that might increase private saving How does it affect the market for loanable funds?

Is the introduction of a consumption tax to replace the income tax. Since a consumption tax would not tax the returns to saving, it would increase the supply of loanable funds and lowering interest rates and increase investment

Explain why is mutual fund is likely to be less risky than an individual stock?

Mutual funds make diversification easy. When one stock in the fund is performing poorly, it is likely that another stock is performing well.

Rate of population growth influences the level of GDP per person (how? 3)

Promoting technical progress: More people = more scientists, engineers = more frequent discoveries = faster technical progress and economic growth

Rate of population growth influences the level of GDP per person (how? 1)

Stretching natural resources: 200 years ago, Malthus stated that population growth strain society's ability ro provide for itseft. Since then, the world population has increased sixfold but the living standards has risen --> Malthus failed to account for technological progress and productivity growth

Public saving=

T-G

Why is it important for people who own stocks and bonds to diversify their holding?

The value of any single stock or bond is tie to the fortunes of one company --> face less risk because they have only a small stake in each company

Private saving=

Y-T-C

crowding out

a decrease in investment that results from government borrowing

financial system

a group of institutions in the economy that help to match one person's saving with another person's investment

budget decifit

a shortfall of tax revenue over government spending

budget surplus

an excess of tax revenue over government spending

The growth rate of GDP measures

economic progress

The level of a nation's GDP measures __________

economic prosperity

financial markets

financial institutions through which savers can directly provide funds to borrowers

financial intermediaries

financial institutions through which savers can indirectly provide funds to borrowers