Sie sind auf Seite 1von 8

macro ch 13 savings & investment

True/False Indicate whether the statement is true or false. ____ ____ ____ ____ ____ ____ ____ ____ 1. Most entrepreneurs finance their purchases of real capital using their past saving. 2. To state that national saving is equal to investment, for a closed economy, is to state an accounting identity. 3. Public saving is equal to national saving minus private saving. 4. To state that public saving is equal to investment, for a closed economy, is to state an accounting identity. 5. Suppose a small closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national saving are both $1 billion. 6. The ratio of government debt to GDP was higher during the Reagan presidency than at any previous time in U.S. history. 7. An increase in the demand for loanable funds increases the equilibrium interest rate and decreases the equilibrium level of saving. 8. An increase in the budget deficit shifts the demand for loanable funds to the right. Multiple Choice Identify the choice that best completes the statement or answers the question. ____ 9. We associate the term debt finance with a. the bond market, and we associate the term equity finance with the stock market. b. the stock market, and we associate the term equity finance with the bond market. c. financial intermediaries, and we associate the term equity finance with financial markets. d. financial markets, and we associate the term equity finance with financial intermediaries.

____ 10. If Proctor and Gamble sells a bond it is a. borrowing directly from the public. b. borrowing indirectly from the public. c. lending directly to the public. d. lending indirectly to the public. ____ 11. Which of the following is correct? a. Some bonds have terms as short as a few months. b. Because they are so risky, junk bonds pay a low rate of interest. c. Corporations buy bonds to raise funds. d. All of the above are correct. ____ 12. Municipal bonds pay a relatively a. low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax. b. low rate of interest because of their low default risk and because the interest they pay is

not subject to federal income tax. c. high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay. d. high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax. ____ 13. The sale of stocks a. and bonds to raise money is called debt finance. b. and bonds to raise money is called equity finance. c. to raise money is called debt finance, while the sale of bonds to raise funds is called equity finance. d. to raise money is called equity finance, while the sale of bonds to raise funds is called debt finance. ____ 14. Suppose that the tires of a certain tire manufacturer are discovered to be defective. Other things the same, this news would cause a. the demand for this companys stock to decrease, so the price would rise. b. the demand for this companys stock to decrease, so the price would fall. c. the supply of this companys stock to decrease, so the price would fall. d. the supply of this companys stock to decrease, so the price would rise. ____ 15. Volume, as reported in stock tables, refers to the a. number of shares traded. b. percentage of shares outstanding traded. c. number of shares traded times the price they sold at. d. number of shares of a company traded divided by the shares of all companies traded. ____ 16. Which of the following statements is correct? a. Stocks, bonds, and deposits are all similar in that each provides a common medium of exchange. b. Most buyers of stocks and bonds prefer those issued by large and familiar companies. c. Banks charge borrowers a slightly lower interest rate than they pay to depositors. d. None of the above is correct. ____ 17. The primary advantage of mutual funds is that they a. always make a return that "beats the market." b. allow people with small amounts of money to diversify. c. provide customers with a medium of exchange. d. All of the above are correct. ____ 18. According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would a. raise national saving and public saving. b. raise national saving and raise public saving. c. leave national saving and public saving unchanged. d. leave national saving unchanged and raise public saving. ____ 19. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving? a. 1,500 and -500, respectively b. 1,500 and 500, respectively c. 1,000 and -500, respectively d. 1,000 and 500, respectively

____ 20. Suppose the economy is closed and consumption is 6,500, taxes are 1,500, and government purchases are 2,000. If national saving amounts to 1,000, then what is GDP? a. 9,500 b. 10,000 c. 10,500 d. None of the above is correct. ____ 21. For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then a. private saving = $10,000 and GDP = $54,000. b. private saving = $10,000 and GDP = $58,000. c. private saving = $12,000 and GDP = $67,000. d. private saving = $12,000 and GDP = $72,000. Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $110,000; consumption = $70,000; private saving = $8,000; national saving = $12,000. ____ 22. Refer to Scenario 26-1. For this economy, investment amounts to a. $4,000. b. $8,000. c. $12,000. d. $16,000. ____ 23. Refer to Scenario 26-1. For this economy, government purchases amount to a. $12,000. b. $18,000. c. $28,000. d. $40,000. ____ 24. Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded. GDP Consumption Taxes Net of Transfers Government Spending a. b. c. d. $25 billion $20 billion $15 billion $10 billion $100 billion $65 billion $15 billion $20 billion

____ 25. The slope of the demand for loanable funds curve represents the a. positive relation between the real interest rate and investment. b. negative relation between the real interest rate and investment. c. positive relation between the real interest rate and saving. d. negative relation between the real interest rate and saving. ____ 26. If there is a shortage of loanable funds, then

a. b. c. d.

the quantity demanded is greater than the quantity supplied and the interest rate will rise. the quantity demanded is greater than the quantity supplied and the interest rate will fall. the quantity supplied is greater than the quantity demanded and the interest rate will rise. the quantity supplied is greater than the quantity demanded and the interest rate will fall.

____ 27. If in the past Congress had taken additional actions to make saving more rewarding, then today it is likely that the equilibrium interest rate a. and the equilibrium quantity of loanable funds both would be lower. b. and the equilibrium quantity of loanable funds both would be higher. c. would be higher and the equilibrium quantity of loanable funds would be lower. d. would be lower and the equilibrium quantity of loanable funds would be higher. ____ 28. Which of the following is not correct? a. American families save a larger fraction of their incomes than their counterparts in many other countries such as Germany and Japan. b. Saving is an important long-run determinant of a nation's standard of living. c. A change in tax laws that encouraged greater saving would lower interest rates. d. Taxes on interest income can substantially decrease the future value of current saving. ____ 29. Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds? a. The interest rate and investment would fall. b. The interest rate and investment would rise. c. The interest rate would rise and investment would fall. d. None of the above is necessarily correct. ____ 30. If Canada increases its budget deficit, it will reduce a. private saving and so shift the supply of loanable funds left. b. investment and so shift the demand for loanable funds left. c. public saving and so shift the supply of loanable funds left. d. None of the above is correct. Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves.

i
S2 C B

S1 F

D2

D1

____ 31. Refer to Figure 26-3. A shift of the demand curve from D1 to D2 is called a. an increase in the demand for loanable funds, and that increase would originate from people who had some extra income they wanted to lend. b. an increase in the demand for loanable funds, and that increase would originate from households and firms who wish to borrow to make investments. c. a decrease in the demand for loanable funds, and that decrease would originate from people who had some extra income they wanted to lend. d. a decrease in the demand for loanable funds, and that decrease would originate from households and firms who wish to borrow to make investments. Short Answer 32. Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

33. The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

macro ch 13 savings & investment Answer Section


TRUE/FALSE 1. ANS: NAT: TOP: 2. ANS: NAT: TOP: 3. ANS: NAT: TOP: 4. ANS: NAT: TOP: 5. ANS: NAT: TOP: 6. ANS: NAT: TOP: 7. ANS: NAT: TOP: 8. ANS: NAT: TOP: F PTS: 1 DIF: 1 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Investment MSC: Definitional T PTS: 1 DIF: 1 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Identities MSC: Interpretive T PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics National saving MSC: Definitional F PTS: 1 DIF: 1 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Identities MSC: Interpretive T PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics National saving | Investment MSC: Applicative F PTS: 1 DIF: 1 REF: 26-3 Analytic LOC: The study of economics and definitions in economics Government debt MSC: Definitional F PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Market for loanable funds MSC: Applicative F PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: The study of economics and definitions in economics Budget deficits MSC: Applicative

MULTIPLE CHOICE 9. ANS: NAT: TOP: 10. ANS: NAT: TOP: 11. ANS: NAT: TOP: 12. ANS: NAT: TOP: 13. ANS: A PTS: 1 DIF: 2 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Financial markets | Financial intermediaries MSC: Interpretive A PTS: 1 DIF: 2 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Bonds | Financial markets MSC: Interpretive A PTS: 1 DIF: 1 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Bonds MSC: Interpretive B PTS: 1 DIF: 2 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Bonds | Interest rates MSC: Interpretive D PTS: 1 DIF: 1 REF: 26-1

14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29.

NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT: TOP: ANS: NAT:

Analytic LOC: The study of economics and definitions in economics Bonds | Stock MSC: Definitional B PTS: 1 DIF: 2 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Stock MSC: Analytical A PTS: 1 DIF: 1 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Stock MSC: Definitional B PTS: 1 DIF: 1 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Stock | Bonds | Banks MSC: Interpretive B PTS: 1 DIF: 2 REF: 26-1 Analytic LOC: The study of economics and definitions in economics Mutual funds | Diversification MSC: Definitional D PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics National saving | Public saving MSC: Interpretive A PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Public saving | Private saving MSC: Applicative A PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Gross domestic product MSC: Applicative C PTS: 1 DIF: 3 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Private saving | Gross domestic product MSC: Applicative C PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Investment MSC: Applicative C PTS: 1 DIF: 2 REF: 26-2 Analytic LOC: The study of economics and definitions in economics Government purchases MSC: Applicative C PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Market for loanable funds MSC: Applicative B PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Market for loanable funds MSC: Interpretive A PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Market for loanable funds MSC: Interpretive D PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Saving | Market for loanable funds MSC: Applicative A PTS: 1 DIF: 1 REF: 26-3 Analytic LOC: Understanding and applying economic models Saving MSC: Interpretive B PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models

TOP: 30. ANS: NAT: TOP: 31. ANS: NAT: TOP:

Investment tax credit | Market for loanable funds MSC: Applicative C PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Budget deficits | Market for loanable funds MSC: Applicative B PTS: 1 DIF: 2 REF: 26-3 Analytic LOC: Understanding and applying economic models Market for loanable funds MSC: Interpretive

SHORT ANSWER 32. ANS: When the interest rate rises investment spending becomes more expensive, so people invest less. As the interest rate rises saving becomes more rewarding, so people want to save more. The inverse relation between interest and borrowing is reflected in the downward slope of the demand for loanable funds curve. The positive relation between interest and saving is reflected in the upward slope of the supply of loanable funds curve. PTS: 1 DIF: 2 REF: 26-3 NAT: Analytic LOC: Understanding and applying economic models TOP: Market for loanable funds MSC: Interpretive 33. ANS: The claim that an increase in the interest rate decreases investment supposes that only the interest rate changes and everything else is constant. The investment tax credit causes investment to rise at each interest rate. As firms want to borrow more the interest rate will rise. The rise in interest rates does make investment less than it would otherwise be, but unless the supply of loanable funds is vertical, the increase in investment demand from the tax credit is larger than the decrease in investment demand from the rising interest rate. PTS: 1 DIF: 3 REF: 26-3 LOC: Understanding and applying economic models MSC: Analytical NAT: Analytic TOP: Investment