Question 1

If capital inflow is negative, then a country:

Accepted Answer

A)  borrows more than it lends to other countries.
B)  lends more than it borrows from other countries.
C)  has balanced trade.
D)  imports more than it exports.

Question 2

The savings-investment spending identity says that savings and investment spending are:

Accepted Answer

A)  always equal because private savings match government savings.
B)  equal as long as there is no trade surplus or deficit.
C)  always equal for the economy as a whole.
D)  equal as long as there is no government budget deficit or surplus.

Question 3

All other things unchanged, an increase in demand for loanable funds would most likely be caused by a(n) :

Accepted Answer

A)  decrease in expected business opportunities.
B)  increase in the market interest rate.
C)  increase in corporate income tax rates.
D)  increase in government borrowing.

Question 4

A decrease in the demand for loanable funds would most likely be caused by a(n) :

Accepted Answer

A)  decrease in the inflation rate.
B)  increase in the budget deficit.
C)  decrease in expected business opportunities.
D)  increase in expected business opportunities.

Question 5

What are the three tasks of a financial system? Explain how a mutual fund performs these three tasks.

Accepted Answer

The three tasks of a financial system ar...

Question 6

Crowding out is a phenomenon in which:

Accepted Answer

A)  an increase in the government's budget surplus decreases overall investment spending.
B)  overproduction in the goods market leads to a sharp drop in the aggregate price level.
C)  an increase in the government's budget deficit reduces overall investment spending.
D)  an increase in imports reduces overall domestic production.

Question 7

An increase in the level of business opportunities will not change investment spending.

Accepted Answer

A) True 
 B)False

Question 8

Suppose Maria wins a $7 million lottery and is trying to decide whether to take $2 million all at once or $7 million over 20 years. One bit of information Maria would need to know is what the prevailing _____ will be over the next 20 years.

Accepted Answer

A)  unemployment rate
B)  interest rate
C)  deflation rate
D)  standard of living

Question 9

Banks are financial intermediaries that:

Accepted Answer

A)  have customer deposits as the primary asset and loans to borrowers as the primary liability.
B)  provide liquid assets to lenders and long-term financing to borrowers.
C)  are types of mutual funds.
D)  have customer deposits as the primary asset and that provide liquid assets to lenders.

Question 10

Use the following to answer questions : 
-(Table: Investment Spending, Private Spending, and Capital Inflows)  What is the budget balance as a percentage of GDP in Southlandia?

Accepted Answer

A)  -10%
B)  0%
C)  10%
D)  20%

Question 11

Net capital inflow equals:

Accepted Answer

A)  national savings.
B)  imports minus exports.
C)  consumption.
D)  consumption plus government spending.

Question 12

Which of the following is the index that includes the most companies and provides the broadest measure of stock market performance?

Accepted Answer

A)  the Dow Jones Industrial Average
B)  the producer price index
C)  the S&P 500
D)  the NASDAQ

Question 13

In financial markets:

Accepted Answer

A)  households sell liabilities.
B)  wealth is transformed into savings.
C)  households purchase financial assets.
D)  physical assets change hands.

Question 14

Explain what the Fisher effect implies. What does this effect tell us about the relationship between inflation expectations and the market for loanable funds?

Accepted Answer

In general, the Fisher effect says that ...

Question 15

An expectation that perceived business opportunities will increase will generally cause _____ for loanable funds.

Accepted Answer

A)  a shift to the left in the demand curve
B)  a movement along the demand curve
C)  an increase in the demand
D)  a decrease in the demand

Question 16

Interest rates:

Accepted Answer

A)  were very high in the 1970s and decreased in the 1980s.
B)  were very low in the 1970s and increased in the 1980s.
C)  steadily increased from 1960 through 2012.
D)  steadily decreased from 1960 through 2012.

Question 17

National savings is the sum of:

Accepted Answer

A)  private savings plus the budget balance.
B)  private savings plus government spending.
C)  investment spending plus consumption.
D)  consumption spending minus government spending.

Question 18

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 19

Which of the following assets is the LEAST liquid?

Accepted Answer

A)  cash
B)  checking account balance
C)  corporate bond
D)  ownership of one fourth of a privately held company

Question 20

A financial intermediary transforms funds gathered from many individuals into financial assets.

Accepted Answer

A) True 
 B)False

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

A financial intermediary transforms funds gathered from many individuals into financial assets.

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Suppose Maria wins a $7 million lottery and is trying to decide whether to take $2 million all at once or $7 million over 20 years. One bit of information Maria would need to know is what the prevailing _____ will be over the next 20 years.

Correct AnswerverifiedShow Answer

What are the three tasks of a financial system? Explain how a mutual fund performs these three tasks.

Correct AnswerverifiedThe three tasks of a financial system ar...View AnswerShow Answer

All other things unchanged, an increase in demand for loanable funds would most likely be caused by a(n) :

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National savings is the sum of:

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Taxes equal:

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Which of the following assets is the LEAST liquid?

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Crowding out is a phenomenon in which:

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An increase in the level of business opportunities will not change investment spending.

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Explain what the Fisher effect implies. What does this effect tell us about the relationship between inflation expectations and the market for loanable funds?

Correct AnswerverifiedIn general, the Fisher effect says that ...View AnswerShow Answer

If capital inflow is negative, then a country:

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Use the following to answer questions : -(Table: Investment Spending, Private Spending, and Capital Inflows) What is the budget balance as a percentage of GDP in Southlandia?

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A decrease in the demand for loanable funds would most likely be caused by a(n) :

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An expectation that perceived business opportunities will increase will generally cause _____ for loanable funds.

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Net capital inflow equals:

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Banks are financial intermediaries that:

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The savings-investment spending identity says that savings and investment spending are:

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In financial markets:

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Which of the following is the index that includes the most companies and provides the broadest measure of stock market performance?

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Interest rates:

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The three tasks of a financial system ar...
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In general, the Fisher effect says that ...
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