Question 1

A budget deficit ________.

Accepted Answer

A)  may have stimulative effects on economic activity in the short run 
B)  contributes to lower interest rates in the long run 
C)  is likely to increase future productive capacity in the long run 
D)  all of the above 
E)  none of the above 
A)  may have stimulative effects on economic activity in the short run 
B)  contributes to lower interest rates in the long run 
C)  is likely to increase future productive capacity in the long run 
D)  all of the above 
E)  none of the above

Question 2

China is a large open economy with an extraordinarily high saving rate. If, as seems likely, there is a decrease in desired saving in the coming years, what effects should we expect to see on China's trade balance (net capital flow), domestic real interest rate, and actual levels of saving and investment?

Accepted Answer

A decrease in desired saving leads to a

Question 3

If desired saving increases in a small open economy, net exports (net capital outflow) rise. What happens to net exports if desired saving rises in most of the world's economies at the same time?

Accepted Answer

An increase in global saving reduces the

Question 4

Which of the four government policies to stimulate saving is essential? That is, which policy can on its own, regardless of the other policies, determine the level of the national saving rate?

Accepted Answer

Reduce budget deficits. A higher tax on

Question 5

In an economy open to international trade ________.

Accepted Answer

A)  saving equals investment in equilibrium 
B)  saving is the difference between net exports and investment 
C)  saving equals investment as long as the economy has no exports 
D)  saving equals investment as long as NX=0 
E)  none of the above 
A)  saving equals investment in equilibrium 
B)  saving is the difference between net exports and investment 
C)  saving equals investment as long as the economy has no exports 
D)  saving equals investment as long as NX=0 
E)  none of the above

Question 6

If government cuts taxes ________.

Accepted Answer

A)  national saving goes up 
B)  the equilibrium interest rate would decrease 
C)  all of the above 
D)  discretionary income goes up 
E)  none of the above 
A)  national saving goes up 
B)  the equilibrium interest rate would decrease 
C)  all of the above 
D)  discretionary income goes up 
E)  none of the above

Question 7

In an open economy, an increase in saving might not cause an increase in domestic investment. Why not? Does that mean that an increase in saving is undesirable?

Accepted Answer

An increase in saving can affect the dom

Question 8

Which of the following is a correct statement?

Accepted Answer

A)  Wealth can increase even if there is no saving 
B)  An increase in net foreign assets always increases wealth 
C)  Low U.S. national saving is the principal cause of the trade deficits the U.S. has run since the 1980s 
D)  The U.S will be a net debtor nation for the foreseeable future. 
E)  all of the above 
A)  Wealth can increase even if there is no saving 
B)  An increase in net foreign assets always increases wealth 
C)  Low U.S. national saving is the principal cause of the trade deficits the U.S. has run since the 1980s 
D)  The U.S will be a net debtor nation for the foreseeable future. 
E)  all of the above

Question 9

If there is a decrease in world investment ________.

Accepted Answer

A)  domestic saving would rise 
B)  net exports would decrease 
C)  domestic output would go up 
D)  all of the above 
E)  none of the above 
A)  domestic saving would rise 
B)  net exports would decrease 
C)  domestic output would go up 
D)  all of the above 
E)  none of the above

Question 10

In the long run, if government increases spending ________.

Accepted Answer

A)  interest rates decrease 
B)  it crowds out private investment 
C)  saving increases 
D)  all of the above 
E)  none of the above 
A)  interest rates decrease 
B)  it crowds out private investment 
C)  saving increases 
D)  all of the above 
E)  none of the above

Question 11

An increase in ________ in an open economy of any size leads to ________.

Accepted Answer

A)  desired saving; an increase in net capital outflows 
B)  desired investment; a decrease in net capital outflows 
C)  desired saving; an increase in the trade balance 
D)  all of the above 
E)  none of the above 
A)  desired saving; an increase in net capital outflows 
B)  desired investment; a decrease in net capital outflows 
C)  desired saving; an increase in the trade balance 
D)  all of the above 
E)  none of the above

Question 12

In the equation S =   -   - C   -   , which of the following is an endogenous variable?

Accepted Answer

A)  r 
B)    
C)    
D)  all of the above 
E)  none of the above 
A)  r 
B)    
C)    
D)  all of the above 
E)  none of the above

Question 13

An investment tax credit ________.

Accepted Answer

A)  is designed to incentivize higher capital stock expenditures at any given interest rate 
B)  may lead to increases in autonomous investment 
C)  may put upward pressure on the interest rate 
D)  all of the above 
E)  none of the above 
A)  is designed to incentivize higher capital stock expenditures at any given interest rate 
B)  may lead to increases in autonomous investment 
C)  may put upward pressure on the interest rate 
D)  all of the above 
E)  none of the above

Question 14

Increases in ________ typically lead to decreases in consumption

Accepted Answer

A)  the interest rate 
B)  disposable income 
C)  autonomous consumption 
D)  all of the above 
E)  none of the above 
A)  the interest rate 
B)  disposable income 
C)  autonomous consumption 
D)  all of the above 
E)  none of the above

Question 15

In a large open economy ________.

Accepted Answer

A)  direction of the shifts in saving and investment on the trade balance are the same as for a small open economy 
B)  the direction of the shifts in saving and investment on net capital flows are the same as in a closed economy 
C)  the direction of the effect on the domestic real interest rate and the actual levels of saving and investment are the same as in a small open economy 
D)  all of the above 
E)  none of the above 
A)  direction of the shifts in saving and investment on the trade balance are the same as for a small open economy 
B)  the direction of the shifts in saving and investment on net capital flows are the same as in a closed economy 
C)  the direction of the effect on the domestic real interest rate and the actual levels of saving and investment are the same as in a small open economy 
D)  all of the above 
E)  none of the above

Question 16

Government saving refers to ________.

Accepted Answer

A)  tax revenues minus transfers minus government purchases 
B)  tax revenues plus transfers minus government consumption 
C)  the saving rate times transfers 
D)  national plus private saving 
E)  none of the above 
A)  tax revenues minus transfers minus government purchases 
B)  tax revenues plus transfers minus government consumption 
C)  the saving rate times transfers 
D)  national plus private saving 
E)  none of the above

Question 17

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (rw)________.

Accepted Answer

A) only if capital is not perfectly mobile B) because with no barriers to capital flows, if rw > r domestic residents would just lend abroad putting upward pressures on the domestic rate until both rates equal each other C) because with no barriers to capital flows, if rw < r domestic residents would only lend to foreigners putting downward pressures on the domestic rate until both rates equal each other D) all of the above E) none of the above A) only if capital is not perfectly mobile B) because with no barriers to capital flows, if rw > r domestic residents would just lend abroad putting upward pressures on the domestic rate until both rates equal each other C) because with no barriers to capital flows, if rw < r domestic residents would only lend to foreigners putting downward pressures on the domestic rate until both rates equal each other D) all of the above E) none of the above

Question 18

Suppose the world economy is divided into two halves. In Region A, all economies experience a decrease in desired saving, while desired saving is unchanged in Region B. If there is open trade and perfect capital mobility across the two regions, which of the following is true?

Accepted Answer

A)  Actual saving in Region B has increased. 
B)  Actual investment in Region A has increased. 
C)  Region A's imports from Region B have decreased. 
D)  all of the above 
E)  none of the above 
A)  Actual saving in Region B has increased. 
B)  Actual investment in Region A has increased. 
C)  Region A's imports from Region B have decreased. 
D)  all of the above 
E)  none of the above

Question 19

Saving-Investment Diagram
  
-Based on the Saving-Investment Diagram, if the difference between values G and E measures the net capital outflow, then ________.

Accepted Answer

A)  the difference between values H and E measures the trade deficit 
B)  the difference between values F and D measures the trade surplus 
C)  the domestic real interest rate is indicated by A 
D)  the difference between values F and E measures the trade deficit 
E)  none of the above 
A)  the difference between values H and E measures the trade deficit 
B)  the difference between values F and D measures the trade surplus 
C)  the domestic real interest rate is indicated by A 
D)  the difference between values F and E measures the trade deficit 
E)  none of the above

Question 20

If there is a decrease in world investment ________.

Accepted Answer

A)  domestic investment would fall 
B)  net capital outflow would increase 
C)  the domestic interest rate would go up 
D)  all of the above 
E)  none of the above 
A)  domestic investment would fall 
B)  net capital outflow would increase 
C)  the domestic interest rate would go up 
D)  all of the above 
E)  none of the above

Exam 4: Saving and Investment in Closed and Open Economies

A budget deficit ________.

If desired saving increases in a small open economy, net exports (net capital outflow) rise. What happens to net exports if desired saving rises in most of the world's economies at the same time?

Which of the four government policies to stimulate saving is essential? That is, which policy can on its own, regardless of the other policies, determine the level of the national saving rate?

In an economy open to international trade ________.

If government cuts taxes ________.

In an open economy, an increase in saving might not cause an increase in domestic investment. Why not? Does that mean that an increase in saving is undesirable?

Which of the following is a correct statement?

If there is a decrease in world investment ________.

In the long run, if government increases spending ________.

An increase in ________ in an open economy of any size leads to ________.

In the equation S = - - C - , which of the following is an endogenous variable?

An investment tax credit ________.

Increases in ________ typically lead to decreases in consumption

In a large open economy ________.

Government saving refers to ________.

The domestic real interest rate (r) for a given country must be the same as the world real interest rate (rw)________.

Suppose the world economy is divided into two halves. In Region A, all economies experience a decrease in desired saving, while desired saving is unchanged in Region B. If there is open trade and perfect capital mobility across the two regions, which of the following is true?

Saving-Investment Diagram -Based on the Saving-Investment Diagram, if the difference between values G and E measures the net capital outflow, then ________.

If there is a decrease in world investment ________.

The Policy and Practice of Macroeconomics

Measuring Macroeconomic Data

Aggregate Production and Productivity

Money and Inflation

The Sources of Growth and the Solow Model

Drivers of Growth: Technology, Policy, and Institutions

Business Cycles: an Introduction

The Is Curve

Monetary Policy and Aggregate Demand

Aggregate Supply and the Phillips Curve

The Aggregate Demand and Supply Model

Macroeconomic Policy and Aggregate Demand and Supply Analysis

The Financial System and Economic Growth

Financial Crises and the Economy

Fiscal Policy and the Government Budget

Exchange Rates and International Economic Policy

Consumption and Saving

Investment

The Labor Market, Employment, and Unemployment

The Role of Expectations in Macroeconomic Policy

Modern Business Cycle Theory

Filters

An increase in in an open economy of any size leads to .