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Exam 13: Saving, Investment, and the Financial System

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Question 81

Multiple Choice

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Suppose government expenditures on goods and services increase, transfers are unchanged, and taxes rise by less than the increase in expenditures. These changes in the government's budget cause

A) both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall.
B) both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise.
C) the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall.
D) the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.

E) A) and B)
F) A) and C)

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Question 82

Multiple Choice

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The slope of the supply of loanable funds is based on the logic that an increase in interest rates

A) makes saving more attractive.
B) makes saving less attractive.
C) makes investment more attractive.
D) makes investment less attractive.

E) None of the above
F) C) and D)

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Question 83

Multiple Choice

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What do we call financial institutions through which savers can indirectly provide funds to borrowers?

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Suppose the economy is closed with national saving of $2 trillion, consumption of $8 trillion, and government purchases of $1 trillion. What is GDP?

Scenario 13-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $300; net exports = $100; taxes = $230; private saving = $200; and national saving = $150. -Refer to Scenario 13-3. For this economy, GDP equals

In a closed economy, if Y and T remained the same, but G rose, and C fell but by less than the rise in G, what would happen to private and national saving?

The identity that shows that total income and total expenditure are equal is

The sale of either stocks or bonds to raise money is known as equity finance.

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal.

Assuming the market for loanable funds is in equilibrium, use the following numbers to determine the quantity of loanable funds supplied. $\begin{array} { | l | c | } \hline \text { GDP } & \$ 8.7 \text { trillion } \\\hline \text { Consumption Spending } & \$ 3.2 \text { trillion } \\\hline \text { Taxes Net of Transfers } & \$ 2.7 \text { trillion } \\\hline \text { Government Purchases } & \$ 3.0 \text { trillion } \\\hline\end{array}$

Identify each of the following acts as representing either saving or investment. a.Fred uses some of his income to buy government bonds. b.Julie takes some of her income and buys mutual funds. c.Alex purchases a new truck for his delivery business using borrowed funds. d.Elaine uses some of her income to buy stock in a major corporation. e.Henrietta hires a builder to construct a new building for her bicycle shop.

National saving

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

If in a closed economy Y = $11 trillion, which of the following combinations would be consistent with national saving of $2.5 trillion?

The single most important piece of information about a stock is its

The economy's two most important financial markets are

Which of the following is not a nonsensical headline?

Institutions that help to match one person's saving with another person's investment are collectively called the

A government may use deficit financing to smooth tax rates over time.