Question 1

For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Accepted Answer

A)  $5 trillion and $3 trillion, respectively
B)  $5 trillion and $1 trillion, respectively
C)  $2 trillion and $3 trillion, respectively
D)  $2 trillion and $1 trillion, respectivelyE) C) and D)
F) None of the above

Question 2

​Valeria is a closed economy, where consumption totals $3 billion, tax payments are $300 million, government spending is $1 billion, and GDP is $5 billion. Private saving amounts to

Accepted Answer

A)  $​1.7 billion and Valeria's government runs a budget deficit.
B)  ​$1.7 billion and Valeria's government runs a budget surplus.
C)  $1 billion and Valeria's government runs a budget deficit.
D)  ​$1 billion and Valeria's government runs a budget surplusE) C) and D)
F) B) and D)

Question 3

Use the following table to answer the following questions.
Table 26-1 
-Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Accepted Answer

A)  GenMills
B)  Microsoft
C)  Graco
D)  HersheyE) A) and B)
F) A) and C)

Question 4

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Accepted Answer

A)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.
B)  in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving.
C)  markets for government debt are fundamentally different from markets for private debt.
D)  of our assumption that the economy is closed.E) C) and D)
F) All of the above

Question 5

Scenario 26-3. Assume the following information for an imaginary, open economy.
Consumption = $1,000; investment = $200; net exports = -$50;
taxes = $230; private saving = $225; and national saving = $150.
-Refer to Scenario 26-3. This economy's government is running a

Accepted Answer

A)  budget deficit of $75.
B)  budget deficit of $80.
C)  budget deficit of $50.
D)  budget deficit of $100.E) B) and C)
F) A) and D)

Question 6

Last quarter in a closed economy GDP was 200,000. Expenditures on capital goods such as business equipment and structures was 19,000, inventory rose 1,000, and new construction of homes was 8,000. Consumption was 135,000 and taxes were 32,000. What was public saving?

Accepted Answer

A)  -4,000
B)  -5,000
C)  -14,000
D)  -6,000E) B) and C)
F) C) and D)

Question 7

In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?

Accepted Answer

A)  $5
B)  $10
C)  $80
D)  $100E) All of the above
F) C) and D)

Question 8

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Accepted Answer

A)  investment falls by $1b.
B)  investment falls by $3b.
C)  investment increases by $1b.
D)  investment falls by $2b.E) C) and D)
F) All of the above

Question 9

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save more?

Accepted Answer

A)  a movement from Point A to Point B
B)  a movement from Point F to Point A
C)  a movement from Point C to Point F
D)  a movement from Point B to Point CE) A) and D)
F) None of the above

Question 10

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Accepted Answer

A)  Consumption and private saving are equal.
B)  The economy's government is running neither a surplus nor a deficit.
C)  Private saving and public saving are both zero.
D)  No restriction is necessary; private saving and investment are equal for all closed economies.E) A) and D)
F) B) and C)

Question 11

​The financial system does NOT influence

Accepted Answer

A)  long-run economic growth.
B)  saving and investment.
C)  the amount of capital in the economy.
D)  ​the amount of natural resources in the economy.E) A) and B)
F) A) and C)

Question 12

Which of the following is correct?

Accepted Answer

A)  Lenders sell bonds and borrowers buy them.
B)  Long-term bonds usually pay a lower interest rate than do short-term bonds because long-term bonds are riskier.
C)  The term junk bonds refers to bonds that have been resold many times.
D)  None of the above is correct.E) C) and D)
F) A) and D)

Question 13

As real interest rates fall, firms desire to

Accepted Answer

A)  buy more new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
B)  buy more new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.
C)  buy less new equipment and buildings. This response helps explain why the supply of loanable funds is upward sloping.
D)  buy less new equipment and buildings. This response helps explain why the demand for loanable funds is downward sloping.E) B) and C)
F) All of the above

Question 14

Which of the following both make the interest rate on a bond higher than otherwise?

Accepted Answer

A)  the interest it pays is taxed and it was issued by a financially strong corporation
B)  the interest it pays is taxed and it was issued by a financially weak corporation
C)  the interest it pays is tax exempt and it was issued by a financially strong corporation
D)  the interest it pays is tax exempt and it was issued by a financially weak corporationE) C) and D)
F) B) and C)

Question 15

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Accepted Answer

The interest rate is below its...

Question 16

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Accepted Answer

Investment = $100, T...

Question 17

The final element of a financial crisis is

Accepted Answer

A)  an economic downturn.
B)  a decline in confidence in financial institutions.
C)  declining prices of real estate or other assets.
D)  a vicious circle.E) C) and D)
F) A) and B)

Question 18

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Accepted Answer

A) True 
 B)False

Question 19

If there is a shortage of loanable funds, then

Accepted Answer

A)  the quantity demanded is greater than the quantity supplied and the interest rate will rise.
B)  the quantity demanded is greater than the quantity supplied and the interest rate will fall.
C)  the quantity supplied is greater than the quantity demanded and the interest rate will rise.
D)  the quantity supplied is greater than the quantity demanded and the interest rate will fall.E) A) and B)
F) All of the above

Question 20

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $70 million. Government spending also increases by $70 million and consumption falls by $10 million. If GDP remains the same and Alpetra is a closed economy, then investment

Accepted Answer

A)  ​increases by $140 million.
B)  increases by $70 million.
C)  decreases by $60 million.
D)  ​decreases by $80 million.E) A) and B)
F) A) and C)

Exam 26: Saving, Investment, and the Financial System

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. This economy's government is running a

Correct AnswerverifiedShow Answer

When public saving falls by $2b and private saving falls by $1b in a closed economy,

Correct AnswerverifiedShow Answer

Use the following table to answer the following questions. Table 26-1 -Refer to Table 26-1. Which firm had the P/E ratio that was closest to the historically typical P/E ratio?

Correct AnswerverifiedShow Answer

Which of the following both make the interest rate on a bond higher than otherwise?

Correct AnswerverifiedShow Answer

For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. What are private saving and national saving?

Correct AnswerverifiedShow Answer

If there is a shortage of loanable funds, then

Correct AnswerverifiedShow Answer

If a share of stock in Skylight Chili sells for $75, the retained earnings per share are $5, and the dividend per share is $2, then the price-earnings ratio is 15.

Correct AnswerverifiedShow Answer

As real interest rates fall, firms desire to

Correct AnswerverifiedShow Answer

Which of the following restrictions implies that private saving and investment are equal for a closed economy?

Correct AnswerverifiedShow Answer

In 2013, ABC Corporation had total earnings of $200 million and 40 million shares of the corporation's stock were outstanding. If the price-earnings ratio for ABC is 20, then what is the price of a share of its stock?

Correct AnswerverifiedShow Answer

Which of the following is correct?

Correct AnswerverifiedShow Answer

The fictional country of Alpetra increases the income tax rate so that tax revenues increase by $70 million. Government spending also increases by $70 million and consumption falls by $10 million. If GDP remains the same and Alpetra is a closed economy, then investment

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​The financial system does NOT influence

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Last quarter in a closed economy GDP was 200,000. Expenditures on capital goods such as business equipment and structures was 19,000, inventory rose 1,000, and new construction of homes was 8,000. Consumption was 135,000 and taxes were 32,000. What was public saving?

Correct AnswerverifiedShow Answer

Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3. Which of the following movements shows the effects of households' decision to save more?

Correct AnswerverifiedShow Answer

Suppose there is a shortage in the market for loanable funds. Is the interest rate above or below its equilibrium level? How do desired saving and desired investment at this interest rate compare?

Correct AnswerverifiedThe interest rate is below its...View AnswerShow Answer

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because

Correct AnswerverifiedShow Answer

The final element of a financial crisis is

Correct AnswerverifiedShow Answer

​Valeria is a closed economy, where consumption totals $3 billion, tax payments are $300 million, government spending is $1 billion, and GDP is $5 billion. Private saving amounts to

Correct AnswerverifiedShow Answer

In a closed economy, GDP is $1000, government purchases are $200, and consumption is $700. If the government has a budget surplus of $25, what are investment, taxes, private saving, and national saving?

Correct AnswerverifiedInvestment = $100, T...View AnswerShow Answer

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The financial system does NOT influence

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The interest rate is below its...
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Valeria is a closed economy, where consumption totals $3 billion, tax payments are $300 million, government spending is $1 billion, and GDP is $5 billion. Private saving amounts to

Correct Answer
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Investment = $100, T...
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