Question 1

The sources of financing of physical capital include:

Accepted Answer

A)   domestic consumption.
B)   foreign borrowing from the home country.
C)   foreign investment in the home country.
D)   foreign consumption.

Question 2

If interest rates increase, making bonds more attractive, the demand for stock will _____ and the price of stock will _____.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   decrease; increase
D)   decrease; decrease

Question 3

In a simple closed economy, all investment spending must come from:

Accepted Answer

A)   savings.
B)   money creation.
C)   debt issuance.
D)   foreign borrowing.

Question 4

The main role of financial systems is to:

Accepted Answer

A)   make the capitalist class richer.
B)   provide credit cards to as many people as possible.
C)   channel goods and services to the people willing to pay for them.
D)   channel funds from savers into investments.

Question 5

GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. How much is investment spending?

Accepted Answer

A)   $3.5 trillion
B)   $3 trillion
C)   $2.5 trillion
D)   $2 trillion

Question 6

A common strategy to reduce the risk of a large financial loss is to:

Accepted Answer

A)   buy and sell assets through a mutual fund since mutual funds cannot lose money.
B)   diversify financial assets so that their risks of failure are unrelated.
C)   buy financial assets from developing countries because the rates of return are very high and safe and their national currencies are much more stable than the U.S. dollar.
D)   buy real instead of financial assets.

Question 7

Transactions costs are likely to be the HIGHEST for:

Accepted Answer

A)   loans.
B)   bonds.
C)   stocks.
D)   bank deposits.

Question 8

Taxes equal:

Accepted Answer

A)   government spending plus private savings.
B)   total spending minus consumption minus investment minus private savings.
C)   total income minus consumption minus private savings.
D)   consumption plus private savings plus total income.

Question 9

The financial system performs certain tasks to make the financial market more efficient. These tasks do NOT include:

Accepted Answer

A)   reducing risk.
B)   reducing menu costs.
C)   reducing transaction costs.
D)   providing liquidity.

Question 10

According to the savings-investment spending identity:

Accepted Answer

A)   savings and investment spending are always equal for the economy as a whole.
B)   for long-run economic growth, savings must be more than investment spending.
C)   for long-run economic growth, savings must be less than investment spending.
D)   the identity of savers and investors is important for encouraging long-run economic growth.

Question 11

The savings-investment spending identity says that savings and investment spending are always equal for the economy as a whole.

Accepted Answer

A) True 
 B)False

Question 12

If in an open economy a country imports more than it exports and the government budget deficit increases, interest rates will _____ and the amount of borrowing will _____.

Accepted Answer

A)   increase; increase
B)   decrease; increase
C)   increase; change unpredictably
D)   change unpredictably; increase

Question 13

Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

Accepted Answer

A)   $1,250.55.
B)   $1,470.59.
C)   $1,530.
D)   $1,500.

Question 14

Use the following to answer questions: 
-(Table: Investment Projects)  Use Table: Investment Projects. If the market interest rate is 9%, the amount of planned investment spending is:

Accepted Answer

A)   $1,800.
B)   $2,000.
C)   $4,000.
D)   $5,500.

Question 15

National savings is the sum of private savings and:

Accepted Answer

A)   private consumption.
B)   government tax revenue.
C)   the budget balance.
D)   trade surplus.

Question 16

Use the following to answer questions: 
-(Table: Investment Projects)  Use Table: Investment Projects. If the market interest rate is 13%, the amount of planned investment spending is:

Accepted Answer

A)   $200.
B)   $800.
C)   $1,000.
D)   $2,000.

Question 17

MOST physical capital, except for infrastructure, is provided by: I. governments through public education.
II)  investment spending by private sector firms.

Accepted Answer

A)   I only
B)   II only
C)   both I and II
D)   neither I nor II

Question 18

A financial asset is:

Accepted Answer

A)   a physical asset like a car.
B)   a claim that entitles the owner to future income from the seller.
C)   the value of accumulated savings.
D)   another term for capital.

Question 19

Use the following to answer questions: 
-(Figure: Loanable Funds)  Use Figure: Loanable Funds. Which scenario might produce a new equilibrium interest rate of 4% and a new equilibrium quantity of loanable funds of $75 billion?

Accepted Answer

A)   Profit expectations for business investments become less optimistic.
B)   Capital inflows from foreign citizens decline.
C)   The federal government runs a budget deficit, rather than a surplus.
D)   The government eliminates taxes on income from interest earned.

Question 20

Use the following to answer questions: 
-(Table: Investment Projects)  Use Table: Investment Projects. If the market interest rate is 15%, the last project undertaken is:

Accepted Answer

A)   F.
B)   G.
C)   H.
D)   I.

Exam 10: Savings, Investment Spending, and the Financial Syst

The sources of financing of physical capital include:

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Use the following to answer questions: -(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate is 13%, the amount of planned investment spending is:

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In a simple closed economy, all investment spending must come from:

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According to the savings-investment spending identity:

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MOST physical capital, except for infrastructure, is provided by: I. governments through public education. II) investment spending by private sector firms.

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Use the following to answer questions: -(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate is 9%, the amount of planned investment spending is:

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Taxes equal:

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Use the following to answer questions: -(Figure: Loanable Funds) Use Figure: Loanable Funds. Which scenario might produce a new equilibrium interest rate of 4% and a new equilibrium quantity of loanable funds of $75 billion?

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The financial system performs certain tasks to make the financial market more efficient. These tasks do NOT include:

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The savings-investment spending identity says that savings and investment spending are always equal for the economy as a whole.

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National savings is the sum of private savings and:

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If in an open economy a country imports more than it exports and the government budget deficit increases, interest rates will _____ and the amount of borrowing will _____.

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Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

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GDP is $12 trillion this year in a closed economy. Consumption is $8 trillion and government spending is $2 trillion. Taxes are $0.5 trillion. How much is investment spending?

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The main role of financial systems is to:

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A common strategy to reduce the risk of a large financial loss is to:

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A financial asset is:

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If interest rates increase, making bonds more attractive, the demand for stock will _____ and the price of stock will _____.

Correct AnswerverifiedShow Answer

Use the following to answer questions: -(Table: Investment Projects) Use Table: Investment Projects. If the market interest rate is 15%, the last project undertaken is:

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Transactions costs are likely to be the HIGHEST for:

Correct AnswerverifiedShow Answer

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If in an open economy a country imports more than it exports and the government budget deficit increases, interest rates will _ and the amount of borrowing will _.

Correct Answer
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If interest rates increase, making bonds more attractive, the demand for stock will _ and the price of stock will _.

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