Question 1

If the Ricardo-Barro effect occurs, an ________ in saving finances the government budget deficit and the real interest rate ________.

Accepted Answer

A)  increase; remains the same 
B)  decrease; increases 
C)  increase; falls 
D)  decrease; remains the same

Question 2

"An increase in the real interest rate increases the quantity of investment." Is the previous statement correct or incorrect?

Accepted Answer

The answer of "An increase in the real interest rate...

Question 3

The U.S. personal savings rate for the first quarter of 2012 dropped to its lowest level since the start of the recession. Americans stashed away 3.6 percent of personal income in the first quarter, down from 4.2 percent in the fourth quarter and a near-term peak of 6.2 percent in the second quarter of 2009. Which of the following could explain this drop in savings?

Accepted Answer

A)  a decrease in wealth from a fall in stock prices 
B)  a rise in the real interest rate 
C)  an increase in disposable income as the job market recovers 
D)  a rise in consumer confidence that their incomes will be higher in the future

Question 4

A firm's decision to invest in a project is based on the

Accepted Answer

A)  real interest rate and expected total revenue. 
B)  nominal interest rate and expected total revenue. 
C)  nominal interest rate and the expected profit. 
D)  real interest rate and the expected profit.

Question 5

If the real interest rate is below the equilibrium real interest rate

Accepted Answer

A)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. 
B)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. 
C)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise. 
D)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall.

Question 6

Expected profit and the real interest rate affect investment decisions.

Accepted Answer

A) True 
 B)False

Question 7

At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is

Accepted Answer

A)  $20,000.00. 
B)  $0. 
C)  $90,000.00. 
D)  $100,000.00.

Question 8

In November 2008, automobile executives from Ford, GM and Chrysler testified to Congress that their firms needed a $25 billion bailout to prevent bankruptcies. The executives stated that part of the cash would be used to re-design production lines. The $25 billion is ________ and the re-designed production lines are ________.

Accepted Answer

A)  financial capital; physical capital 
B)  gross investment; physical capital 
C)  physical capital; financial capital 
D)  net investment; gross investment

Question 9

The idea that a government budget deficit decreases investment is called

Accepted Answer

A)  government dissaving. 
B)  the crowding-out effect. 
C)  the Ricardo-Barro effect. 
D)  the capital investment effect.

Question 10

The term capital, as used in macroeconomics, refers to

Accepted Answer

A)  the amount of money that someone can invest in a new venture. 
B)  the amount of money a firm can raise in the stock market. 
C)  physical capital. 
D)  All of the above answers are correct.

Question 11

-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and the expected profit rises, the amount of loanable funds demanded will be

Accepted Answer

A)  less than $450 billion. 
B)  $450 billion. 
C)  between $300 billion and $450 billion. 
D)  greater than $450 billion.

Question 12

A rise in the real interest rate

Accepted Answer

A)  decreases the demand for loanable funds. 
B)  increases the demand for loanable funds. 
C)  decreases the quantity of loanable funds demanded. 
D)  increases the quantity of loanable funds demanded.

Question 13

Facebook sold shares of stock for the first time in an IPO on May 18, 2012. The stock originally sold for $38 per share. As of October 19, 2012, a share of Facebook stock was valued at $19 per share. The decrease in the value of a share of Facebook purchased in May and still owned in October is called

Accepted Answer

A)  a capital gain. 
B)  a capital loss. 
C)  gross investment. 
D)  net investment.

Question 14

Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a ________ shift in the ________ loanable funds curve.

Accepted Answer

A)  rightward; supply of 
B)  leftward; demand for 
C)  rightward; demand for 
D)  rightward, supply of

Question 15

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in its firm. These owners of Grand Canyon Education the are entitled to a share of the firm's profits. This financing is an example of ________.

Accepted Answer

A)  a mortgage 
B)  a bond 
C)  issuing stock. 
D)  gross investment

Question 16

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then

Accepted Answer

A)  prices rise and inflation occurs. 
B)  there is a surplus of loanable funds. 
C)  there is a shortage of loanable funds. 
D)  there is neither a shortage nor surplus of loanable funds.

Question 17

The nominal interest rate minus the real interest rate approximately equals the

Accepted Answer

A)  rate of increase in the amount of investment. 
B)  inflation rate. 
C)  rate of increase in the income. 
D)  rate the bank receives to cover lending costs.

Question 18

The demand for loanable funds is the relationship between loanable funds and the ________ other things remaining the same.

Accepted Answer

A)  real interest rate 
B)  nominal interest rate 
C)  inflation rate 
D)  price level

Question 19

In the absence of a Ricardo-Barro effect, a government budget deficit ________ the demand for loanable funds and ________ investment.

Accepted Answer

A)  increases; increases 
B)  increases; decreases 
C)  decreases; increases 
D)  decreases; decreases

Question 20

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. ________ investment in 2007 was ________ billion.

Accepted Answer

A)  Gross; $216 
B)  Gross; $129 
C)  Net; $228 
D)  Net; $129

Exam 7: Finance, Saving, and Investment

If the Ricardo-Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .