Question 1

Which of the following influences household saving?
I.The real interest rate
II.Disposable income
III.Expected future income

Accepted Answer

A)  I only 
B)  I and II 
C)  I and III 
D)  I, II, and III 
A)  I only 
B)  I and II 
C)  I and III 
D)  I, II, and III

Question 2

The Ricardo-Barro effect of a government budget deficit refers to

Accepted Answer

A)  a change in private savings supply. 
B)  a large crowding out effect from a government budget deficit. 
C)  a large crowding out effect from a government budget surplus. 
D)  the international impact of government deficits. 
A)  a change in private savings supply. 
B)  a large crowding out effect from a government budget deficit. 
C)  a large crowding out effect from a government budget surplus. 
D)  the international impact of government deficits.

Question 3

A share of Apple stock has a price of $430 and gives $43 of Apple profit to its owner. The interest rate on this share is

Accepted Answer

A)  10 percent. 
B)  $430. 
C)  15.4 percent 
D)  $43. 
A)  10 percent. 
B)  $430. 
C)  15.4 percent 
D)  $43.

Question 4

An increase in the ________ is an example of a capital gain.

Accepted Answer

A)  value of a share of stock 
B)  wage rate of a federal employee 
C)  amount of income not spent on consumption or taxes 
D)  after-tax wage rate as a result of a decrease in income tax rates 
A)  value of a share of stock 
B)  wage rate of a federal employee 
C)  amount of income not spent on consumption or taxes 
D)  after-tax wage rate as a result of a decrease in income tax rates

Question 5

Suppose Molly has an income of $35,000 annually and has inherited a savings account of $20,000. Wyatt has a job that pays $35,000 annually, but has debts totaling $6,000. Which of the following is TRUE?

Accepted Answer

A)  We can expect Wyatt and Molly to save the same proportion of their incomes this year. 
B)  We can expect Molly to save more than Wyatt this year. 
C)  We can expect Wyatt to save more than Molly this year. 
D)  We can expect Wyatt and Molly to have equal amounts of consumption this year. 
A)  We can expect Wyatt and Molly to save the same proportion of their incomes this year. 
B)  We can expect Molly to save more than Wyatt this year. 
C)  We can expect Wyatt to save more than Molly this year. 
D)  We can expect Wyatt and Molly to have equal amounts of consumption this year.

Question 6

Which of the following is FALSE about saving?

Accepted Answer

A)  Saving adds to wealth. 
B)  Income left after paying taxes can either be consumed or saved. 
C)  Saving equals wealth minus consumption expenditures. 
D)  Saving is the source of funds used to finance investment. 
A)  Saving adds to wealth. 
B)  Income left after paying taxes can either be consumed or saved. 
C)  Saving equals wealth minus consumption expenditures. 
D)  Saving is the source of funds used to finance investment.

Question 7

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by ________ and decreases the equilibrium quantity of investment by ________ than if the Ricardo-Barro effect is absent.

Accepted Answer

A)  more; more 
B)  more; less 
C)  less; more 
D)  less; less 
A)  more; more 
B)  more; less 
C)  less; more 
D)  less; less

Question 8

The tendency for private saving to increase in response to growing government deficits is known as the

Accepted Answer

A)  crowding out effect. 
B)  money illusion effect. 
C)  Keynes effect. 
D)  Ricardo-Barro effect. 
A)  crowding out effect. 
B)  money illusion effect. 
C)  Keynes effect. 
D)  Ricardo-Barro effect.

Question 9

Initially the nominal interest rate is 8 percent and the inflation rate is 5 percent. People know that the inflation rate increases to 10 percent. What is the new nominal interest rate?

Accepted Answer

A)  8 percent 
B)  3 percent 
C)  13 percent 
D)  11 percent 
A)  8 percent 
B)  3 percent 
C)  13 percent 
D)  11 percent

Question 10

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

Accepted Answer

A)  United States must borrow an amount equal to national saving. 
B)  United States must borrow an amount equal to imports minus exports. 
C)  rest of the world may or may not finance the U.S. trade deficit. 
D)  United States must borrow an amount equal to consumption expenditure plus investment. 
A)  United States must borrow an amount equal to national saving. 
B)  United States must borrow an amount equal to imports minus exports. 
C)  rest of the world may or may not finance the U.S. trade deficit. 
D)  United States must borrow an amount equal to consumption expenditure plus investment.

Question 11

Suppose the real interest rate rises and the quantity of loanable funds increases. These changes could have been the result of

Accepted Answer

A)  firms expecting higher future profits. 
B)  firms expecting lower future profits. 
C)  households expecting higher future income. 
D)  in increase in the default risk. 
A)  firms expecting higher future profits. 
B)  firms expecting lower future profits. 
C)  households expecting higher future income. 
D)  in increase in the default risk.

Question 12

If households' disposable income decreases, then

Accepted Answer

A)  households' saving will decrease. 
B)  households' saving will increase. 
C)  investment will increase. 
D)  Both B and C are correct. 
A)  households' saving will decrease. 
B)  households' saving will increase. 
C)  investment will increase. 
D)  Both B and C are correct.

Question 13

An increase in disposable income shifts the supply of loanable funds curve

Accepted Answer

A)  leftward and decreases the real interest rate. 
B)  leftward and increases the real interest rate. 
C)  rightward and decreases the real interest rate. 
D)  rightward and increases the real interest rate. 
A)  leftward and decreases the real interest rate. 
B)  leftward and increases the real interest rate. 
C)  rightward and decreases the real interest rate. 
D)  rightward and increases the real interest rate.

Question 14

If U.S. exports are $2.2 billion and our imports are $2.7 billion

Accepted Answer

A)  the United States is lending to the rest of the world. 
B)  U.S. national saving is too high. 
C)  the United States is borrowing from the rest of the world. 
D)  U.S. investment must decrease. 
A)  the United States is lending to the rest of the world. 
B)  U.S. national saving is too high. 
C)  the United States is borrowing from the rest of the world. 
D)  U.S. investment must decrease.

Question 15

In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During the year, the price of a share of Meyer's stock rose to $100. The interest rate paid on the share in January was ________ percent.

Accepted Answer

A)  2 
B)  0.02 
C)  4 
D)  25 
A)  2 
B)  0.02 
C)  4 
D)  25

Question 16

According to the Ricardo-Barro effect, government deficits

Accepted Answer

A)  lead to a rise in the equilibrium real interest rate, crowding out investment. 
B)  lead to simultaneous increases in private saving and no effect on the equilibrium real interest rate and investment. 
C)  lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
D)  lead to a fall in the equilibrium real interest rate and a rise in investment. 
A)  lead to a rise in the equilibrium real interest rate, crowding out investment. 
B)  lead to simultaneous increases in private saving and no effect on the equilibrium real interest rate and investment. 
C)  lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
D)  lead to a fall in the equilibrium real interest rate and a rise in investment.

Question 17

An increase in ________ will shift the supply of loanable funds curve ________.

Accepted Answer

A)  expected future income; rightward 
B)  wealth; leftward 
C)  disposable income; leftward 
D)  default risk; rightward 
A)  expected future income; rightward 
B)  wealth; leftward 
C)  disposable income; leftward 
D)  default risk; rightward

Question 18

Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds.

Accepted Answer

The real interest rate determines the qu

Question 19

Sarah and Diane are both billing clerks for the local trucking company earning $17,000 per year. Sarah is attending college, plans to graduate in one year and earn $55,000 as an economist. Diane is not in college or undergoing any specialized training and will have the same job next year. According to economic theory, which of the two individuals would tend to have a higher current savings rate?

Accepted Answer

A)  Diane 
B)  Sarah 
C)  Both will have the same saving rate. 
D)  Economic theory sheds no light on this question. 
A)  Diane 
B)  Sarah 
C)  Both will have the same saving rate. 
D)  Economic theory sheds no light on this question.

Question 20

The key financial institutions in the United States include all of the following EXCEPT

Accepted Answer

A)  the U.S. Treasury 
B)  the Federal Reserve 
C)  commercial banks, pension funds, and insurance companies 
D)  government-sponsored mortgage lenders 
A)  the U.S. Treasury 
B)  the Federal Reserve 
C)  commercial banks, pension funds, and insurance companies 
D)  government-sponsored mortgage lenders

Which of the following influences household saving? I.The real interest rate II.Disposable income III.Expected future income

The Ricardo-Barro effect of a government budget deficit refers to

A share of Apple stock has a price of $430 and gives $43 of Apple profit to its owner. The interest rate on this share is

An increase in the ________ is an example of a capital gain.

Suppose Molly has an income of $35,000 annually and has inherited a savings account of $20,000. Wyatt has a job that pays $35,000 annually, but has debts totaling $6,000. Which of the following is TRUE?

Which of the following is FALSE about saving?

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by and decreases the equilibrium quantity of investment by than if the Ricardo-Barro effect is absent.

The tendency for private saving to increase in response to growing government deficits is known as the

Initially the nominal interest rate is 8 percent and the inflation rate is 5 percent. People know that the inflation rate increases to 10 percent. What is the new nominal interest rate?

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

Suppose the real interest rate rises and the quantity of loanable funds increases. These changes could have been the result of

If households' disposable income decreases, then

An increase in disposable income shifts the supply of loanable funds curve

If U.S. exports are $2.2 billion and our imports are $2.7 billion

In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During the year, the price of a share of Meyer's stock rose to $100. The interest rate paid on the share in January was ________ percent.

According to the Ricardo-Barro effect, government deficits

An increase in will shift the supply of loanable funds curve .

Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds.

The key financial institutions in the United States include all of the following EXCEPT

What Is Economics?

The Economic Problem

Demand and Supply

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 7: Finance, Saving, and Investment

Which of the following influences household saving? I.The real interest rate II.Disposable income III.Expected future income

The Ricardo-Barro effect of a government budget deficit refers to

A share of Apple stock has a price of $430 and gives $43 of Apple profit to its owner. The interest rate on this share is

An increase in the ________ is an example of a capital gain.

Suppose Molly has an income of $35,000 annually and has inherited a savings account of $20,000. Wyatt has a job that pays $35,000 annually, but has debts totaling $6,000. Which of the following is TRUE?

Which of the following is FALSE about saving?

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by ________ and decreases the equilibrium quantity of investment by ________ than if the Ricardo-Barro effect is absent.

The tendency for private saving to increase in response to growing government deficits is known as the

Initially the nominal interest rate is 8 percent and the inflation rate is 5 percent. People know that the inflation rate increases to 10 percent. What is the new nominal interest rate?

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

Suppose the real interest rate rises and the quantity of loanable funds increases. These changes could have been the result of

If households' disposable income decreases, then

An increase in disposable income shifts the supply of loanable funds curve

If U.S. exports are $2.2 billion and our imports are $2.7 billion

In January, suppose that a share of stock in Meyer, Inc. had a price of $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During the year, the price of a share of Meyer's stock rose to $100. The interest rate paid on the share in January was ________ percent.

According to the Ricardo-Barro effect, government deficits

An increase in ________ will shift the supply of loanable funds curve ________.

Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds.

The key financial institutions in the United States include all of the following EXCEPT

What Is Economics?

The Economic Problem

Demand and Supply

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by and decreases the equilibrium quantity of investment by than if the Ricardo-Barro effect is absent.

An increase in will shift the supply of loanable funds curve .