Deck 8: Saving, Capital Formation, and Financial Markets

Question 1

The saving rate equals saving divided by:

A)wealth.
B)assets.
C)liabilities.
D)income.

Answer 1

income.

Question 2

Wealth equals:

A)current income minus spending on current needs.
B)assets minus liabilities.
C)saving minus investment.
D)investment minus saving.

Answer 2

assets minus liabilities.

Question 3

Liabilities are:

A)current income minus spending on current needs.
B)the debts one owes.
C)saving minus investment.
D)anything of value one owns.

Answer 3

the debts one owes.

Question 4

Suppose that Jordan wins $100,000 in the lottery.If he uses that money to pay off his mortgage, his wealth would ______; if he puts that money in his checking account, his wealth would ______.Jordan has the following assets and liabilities:

A)increase to $209,000; not change
B)not change; increase to $207,000
C)increase to $209,000; increase to $209,000
D)increase to $207,000; not change

Question 5

Chris earns $1,500 per week and spends $1,000 per week on living expenses, puts $200 in a savings account, and buys $300 worth of shares in a stock mutual fund.Chris's saving is _____, and Chris's saving rate is _____.

A)$200; 13.3%
B)$200; 20.0%
C)$300; 20.0%
D)$500; 33.3%

Question 6

What is the value of Taylor's assets? Taylor has the following assets and liabilities:

A)$308,000
B)$416,000
C)$419,000
D)$422,000

Question 7

What is Taylor's wealth? Taylor has the following assets and liabilities:

A)$105,000
B)$107,000
C)$111,000
D)$419,000

Question 8

Which of the following is a liability of a family?

A)Checking account balance
B)Share of stock
C)House
D)Mortgage

Question 9

Saving equals:

A)current spending minus current income.
B)wealth minus assets.
C)assets minus liabilities.
D)current income minus spending on current needs.

Question 10

Pat earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund.Pat's saving is _____, and Pat's saving rate is _____.

A)$50; 5.0%
B)$50; 5.9%
C)$100; 10%
D)$150; 15%

Question 11

Which of the following is a flow?

A)Saving
B)Wealth
C)Assets
D)Money

Question 12

A flow is a measure defined:

A)per unit of time.
B)at a point in time.
C)in real terms.
D)in nominal terms.

Question 13

Assets are:

A)current income minus spending on current needs.
B)stocks, bonds, and credit card balances.
C)saving minus investment.
D)anything of value one owns.

Question 14

A measure defined at a point in time is called a(n) ______ variable.

A)stock
B)nominal
C)aggregate
D)flow

Question 15

Which of the following is an asset of a family?

A)Student loan
B)Mortgage
C)Unpaid credit card balance
D)Checking account balance

Question 16

Jordan's wealth is _____, the value of Jordan's assets is _____, and the value of Jordan's liability is _____.Jordan has the following assets and liabilities:

A)$107,000; $213,000; $100,000
B)$109,000; $213,000; $104,000
C)$111,000; $213,000; $100,000
D)$213,000; $317,000; $104,000

Question 17

Suppose that Taylor receives a $10,000 bonus from her employer.If she puts that money toward her mortgage, her wealth would ______; if she puts that money in her checking account, her wealth would ______.Taylor has the following assets and liabilities:

A)increase to $121,000; decrease to $101,000
B)increase to $115,000; decrease to $95,000
C)increase to $121,000; increase to $121,000
D)increase to $115,000; increase to $115,000

Question 18

Wealth is the same as:

A)net worth.
B)assets.
C)capital gains.
D)savings.

Question 19

What is the value of Taylor's liabilities? Taylor has the following assets and liabilities:

A)$300,000
B)$303,000
C)$308,000
D)$311,000

Question 20

Current income minus spending on current needs equals:

A)saving.
B)wealth.
C)transfers.
D)investment.

Question 21

Elaine owns a beautiful diamond ring she purchased for $2,500.When she has it appraised she learns that it is now worth $3,000.Based on this information:

A)Elaine's saving this year has increased by $500.
B)Elaine's saving this year has decreased by $500.
C)Elaine has experienced a $500 capital gain.
D)Elaine's wealth is unchangeD.Elaine has an existing asset that increased in value.Thus, she has realized a capital gain.

Question 22

Capital gains are ______, and capital losses are ______.

A)increases in the flow of investment; decreases in the flow of investment
B)increases in the flow of saving; decreases in the flow of saving
C)additions to plant and equipment; the destruction of plant and equipment
D)increases in the value of existing assets; decreases in the value of existing assets These are the definitions of "capital gains" and "capital losses."

Question 23

Saving $100 will:

A)increase wealth by $100.
B)increase wealth by $100 only if the $100 is used to purchase an asset.
C)increase wealth by $100 only if the $100 is used to repay a debt.
D)decrease wealth by $100.

Question 24

High rates of saving today contribute to ______ in the future.

A)higher tax rates
B)more unemployment
C)a higher standard of living
D)more capital gains

Question 25

The stock of wealth increases more rapidly the faster the flow of ______.

A)income
B)saving
C)money
D)assets

Question 26

Saving is a(n) ______ and wealth is a(n) ______.

A)stock; flow
B)flow; stock
C)asset; liability
D)liability; asset

Question 27

The change in wealth during a period equals:

A)saving + capital gains - capital losses.
B)saving - capital gains + capital losses.
C)saving - investment + capital gains - capital losses.
D)public saving + private saving - transfers.

Question 28

Total taxes minus transfer payments minus government interest payments is called:

A)a budget surplus.
B)net taxes.
C)a budget deficit.
D)national saving.

Question 29

The large increase in household wealth in the United States in the 1990s was the result of:

A)a high saving rate.
B)a low saving rate.
C)large capital gains.
D)high rates of inflation.

Question 30

Net taxes equal the amount that the:

A)government pays the private sector plus the amount of private sector pays the government.
B)government pays the private sector minus the amount the private sector pays the government.
C)business sector pays the government minus the amount the private sector pays the government.
D)private sector pays the government minus the amount the private sector receives from the government.Net taxes equal the amount that the private sector pays the government minus the amount the private sector receives from the government.

Question 31

If Alex deposits $1,000 from her paycheck into her checking account and, at the same time, increases her credit card balance by $1,500, then her saving is ______, and her wealth ______.

A)+$1,000; decreases by $500
B)+$500; decreases by $1,000
C)-$500; increases by $2,500
D)-$500; decreases by $500

Question 32

If Dylan saves $50 per week, then Dylan's ______ will increase by $50 per week.

A)investment
B)consumption
C)taxes
D)wealth

Question 33

A nation's saving equals its ______ income less its spending on _______.

A)real; investment
B)current; current needs
C)nominal; investment
D)nominal; net taxes

Question 34

If Gerry saves $500 per month, then Gerry's ______ will increase by _____.

A)wealth; $500 only if he has no debt
B)income; $500 only if he buys additional assets
C)wealth; $500
D)wealth; $500 only if he buys additional assets

Question 35

Steve uses $300 from his paycheck to pay off his credit card balance.Based on this information:

A)Steve's saving has increased by $300.
B)Steve's saving has decreased by $300.
C)Steve's wealth is unchanged.
D)Steve has a capital loss of $300.

Question 36

National saving is saving by:

A)households for retirement.
B)the government.
C)households and firms
D)the entire economy.

Question 37

National saving is done by:

A)only households.
B)only businesses.
C)only governments.
D)households, businesses, and governments.

Question 38

Which of the following is a stock?

A)Saving
B)Income
C)Consumption
D)Wealth

Question 39

The Boy Scouts have so far sold 100 tickets for their upcoming raffle, but they sell an additional 12 tickets every day.The ______ is a stock variable, and the ______ is a flow variable.

A)number of tickets sold each day; number of tickets sold so far
B)number of tickets sold so far; total number of tickets sold by the time of the raffle
C)number of tickets sold each day; total number of tickets available
D)total number of tickets sold by the time of the raffle; number of tickets sold each day

Question 40

If Alex uses $800 from her checking account to pay her credit card balance, her wealth:

A)increases by $800.
B)decreases by $800.
C)increases by $1,600.
D)does not change.

Question 41

Based on the following information, what is the amount of public saving?

A)+3,700
B)+2,500
C)+200
D)-300

Question 42

Which of the following is correct?

A)National saving equals private saving plus public saving.
B)Public saving equals national saving plus private saving.
C)Private saving equals national saving plus public saving.
D)National saving equals public saving minus private saving.

Question 43

If government spending increases by $1 million while net taxes are unchanged, then:

A)public saving increases.
B)public saving decreases.
C)public saving does not change.
D)private saving increases.

Question 44

Social Security benefits, welfare payments, and farm support payments are examples of:

A)consumption spending.
B)public interest payments.
C)investment spending.
D)transfer payments.

Question 45

Public saving is negative when:

A)there is a government budget surplus.
B)there is a government budget deficit.
C)the government's budget is balanced.
D)after-tax income of households and businesses is greater than consumption expenditures.

Question 46

The excess of government spending over tax collections is:

A)national income.
B)national saving.
C)national wealth.
D)the government budget deficit.

Question 47

Payments by the government to the public for which the government receives no current goods or services in return are called:

A)public saving.
B)net taxes.
C)transfer payments.
D)capital losses.

Question 48

Private saving equals ____; public saving equals ______; national saving equals ____.Suppose the following information describes the economy:

A)100; 200; 100
B)100; 100; 200
C)200; 100; 300
D)200; 100; 500

Question 49

If net taxes paid by households increase:

A)private saving will decrease.
B)private saving will increase.
C)public saving will decrease.
D)transfer payments to households will decrease.

Question 50

An increase in net taxes (taxes paid by the private sector to the government less transfer payments and interest payments made by the government to the private sector) will:

A)increase private saving.
B)decrease public saving.
C)increase public saving.
D)reduce investment in new capital equipment.

Question 51

Saving by households and businesses is called ______ saving.

A)private
B)public
C)national
D)aggregate

Question 52

Private saving is positive when:

A)there is a government budget surplus.
B)there is a government budget deficit.
C)the government's budget is balanced.
D)after-tax income of households and businesses is greater than consumption expenditures.This is the definition of "private saving."

Question 53

The saving of the government sector is called ______ saving.

A)private
B)public
C)national
D)aggregate

Question 54

If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government interest payments equal $10 billion, then net taxes equal:

A)$115 billion.
B)$125 billion.
C)$190 billion.
D)$275 billion.

Question 55

Public saving is positive when:

A)there is a government budget surplus.
B)after-tax income of households and businesses is less than consumption expenditures.
C)the government's budget is balanced.
D)after-tax income of households and businesses is greater than consumption expenditures.In cases where T-G is positive, there is a government surplus and hence, a budget surplus.

Question 56

When government runs a budget deficit, it makes up the difference by:

A)issuing government bonds.
B)paying down outstanding debt.
C)increasing transfer payments.
D)increasing public saving.

Question 57

When the government runs a budget surplus, it uses the funds to:

A)issue bonds.
B)pay down outstanding debt.
C)decrease transfer payments.
D)decrease public saving.

Question 58

Private saving equals ____; public saving equals ______; national saving equals ____.Suppose the following information describes the economy:

A)800; 200; 600
B)800; 200; 1,000
C)1,000; 800; 1,000
D)1,500; 700; 2,700

Question 59

Which of the following contributed to the turn-around in the U.S.government budget from a surplus in the early 2000s to record deficits by the end of the decade?

A)An increase in household saving.
B)An increase in business saving.
C)An increase in tax revenues because of a recession.
D)An increase in government spending on homeland security and wars.

Question 60

Public saving is:

A)increased when the government budget deficit rises.
B)identical to the government budget surplus.
C)less important to national saving than private saving.
D)more important to national saving than private saving.

Question 61

Which of the following is an example of the life-cycle motive for saving?

A)Pat puts $400 per month in his 401(k) retirement account.
B)Jordan sets aside $200 per month in case she has to pay for a new roof for her house.
C)Gerry and Terry put $2,000,000 in a trust fund that will go to their children when they die.
D)Chris keeps $15,000 in a money market account to pay expenses in case he loses his job.

Question 62

If in the economy, business saving equals $240 billion, household saving equals $15 billion and government saving equals -$150 billion, what is the value of national saving?

A)$415 billion
B)$265 billion
C)$250 billion
D)$105 billion

Question 63

If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving ______ and public saving ______.

A)increases; increases
B)increases; decreases
C)does not change; increases
D)does not change; decreases

Question 64

Saving done for the purpose of leaving an inheritance is called ______ saving.

A)public
B)bequest
C)precautionary
D)life-cycle

Question 65

Explanations for the high saving rate in Japan consistent with the life-cycle reason for saving include:

A)long life expectancies and large down payments required for home purchases.
B)lifetime employment.
C)the desire to leave resources to children who provide support and attention to parents in their old age.
D)low unemployment rates in Japan.

Question 66

Which of the following is an example of the precautionary motive for saving?

A)Pat puts $400 per month in his 401(k) retirement account.
B)Jordan sets aside $200 per month in case she has to pay for a new roof for her house.
C)Gerry and Terry put $2,000,000 in a trust fund that will go to their children when the parents die.
D)Every month, Chris puts $400 into his saving account so that he can buy a new car in a few years.

Question 67

Which of the following is an example of the bequest motive for saving?

A)Pat puts $400 per month in his 401(k) retirement account.
B)Jordan sets aside $200 per month in case she has to pay for a new roof for her house.
C)Gerry and Terry put $2,000,000 in a trust fund that will go to their children when they die.
D)Chris keeps $15,000 in a money market account to pay expenses in case he loses his job.

Question 68

In the United States from 1960 to 2010, the largest positive contribution to national saving was from:

A)the public sector.
B)the government budget deficit.
C)business saving.
D)household saving.

Question 69

Public saving in Econland equals: The data below describe the economy of Econland:

A)-5
B)5
C)16
D)17

Question 70

By international standards, the household saving rate of the United States:

A)has not ever really been high.
B)was extremely high until the 1980s.
C)has always been very high.
D)was low through the 1970s and 1980s, but increased throughout the 1990s to become one of the highest.

Question 71

If consumption spending increases by $10 million with no changes in net taxes, then:

A)public saving increases.
B)public saving decreases.
C)private saving increases.
D)private saving decreases.

Question 72

The three broad reasons for saving, as identified by economists, relate to:

A)consumption, investment, and exports.
B)national, public, and private production.
C)the life-cycle, precaution, and bequests.
D)capital gains, capital losses, and deficits.

Question 73

Other things equal, the combination of a ______ saving rate and a ______ real interest rate will result in the largest accumulation of wealth over time.

A)high; high
B)high; low
C)high; zero
D)low; high

Question 74

Ted and Alice want to make sure that their children will inherit lots of money when they die, so that their children do not have to struggle the way they themselves did.Saving more in response to this is a______ reason for saving.

A)life-cycle
B)bequest
C)private
D)precautionary

Question 75

Saving to meet long-term objectives-such as retirement, college attendance, or to purchase a home,-is called ______ saving.

A)public
B)bequest
C)precautionary
D)life-cycle

Question 76

Fred and Wilma just had a baby girl and want to make sure they save enough in the future to send her to college.They begin to save in response to this ______ reason for saving.

A)life-cycle
B)bequest
C)private
D)precautionary

Question 77

From a macroeconomic perspective, the problem of low household saving has probably been overstated because:

A)household saving is not related at all to an economy's ability to accumulate new capital.
B)household saving has been increasing steadily over the last three decades.
C)it is national saving, not household saving, that allows an economy to accumulate new capital.
D)household saving represents a smaller share of national saving than does public saving.

Question 78

Bob has heard rumors that his employer will be merging with another firm and many employees may lose their jobs, and he wants to be prepared in case he loses his job.If he begins to save more in response to this rumor, it is a ______ reason for saving.

A)life-cycle
B)public
C)private
D)precautionary

Question 79

Explanations for the high saving rate in Japan consistent with the bequest reason for saving include:

A)long life expectancies and large down payments required for home purchases.
B)lifetime employment.
C)the desire to leave resources to children who provide support and attention to parents in their old age.
D)low unemployment rates in Japan.

Question 80

Saving for protection against unexpected setbacks-such as the loss of a job or a medical emergency-is called ______ saving.

A)public
B)bequest
C)precautionary
D)life-cycle