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Problem set 4

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Problem set 4

Uploaded by

Lê Văn Khánh
Copyright
© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
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LECTURE 4: SAVING, INVESTMENT AND FINANCIAL SYSTEM

1) An increase in the budget deficit will


a. Raise the real interest rate and decrease the quantity of loanable funds demanded for
investment.
b. Lower the real interest rate and increase the quantity of loanable funds demanded for
investment.
c. Raise the real interest rate and increase the quantity of loanable funds demanded for
investment.
d. Lower the real interest rate and decrease the quantity of loanable funds demanded for
investment.
2) If there is a surplus of loanable funds?
a. The quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is above equilibrium.
b. The quantity of loanable funds demanded is greater than the quantity of loanable
funds supplied and the interest rate is below equilibrium.
c. The quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is above equilibrium.
d. The quantity of loanable funds supplied is greater than the quantity of loanable funds
demanded and the interest rate is below equilibrium.
3) Suppose that in a closed economy GDP is equal to 10,000, Taxes are equal to 1,500,
Consumption equals 6,500, and Government expenditures equal 2,000. What is national
saving?
a. 3000
b. 0
c. 1500
d. None of the above are correct.
4) An increase in the budget surplus
a. shifts the supply of loanable funds to the left and increases the real interest rate.
b. shifts the supply of loanable funds to the right and reduces the real interest rate.
c. shifts the demand for loanable funds to the right and increases the real interest rate.
d. shifts the demand for loanable funds to the left and reduces the real interest rate.
5) If the public consumes €100 billion less and the government purchases €100 billion more
(other things unchanging), which of the following statement is true?
a. Saving is unchanged.
b. There is an increase in saving and the economy should grow more quickly.
c. There is a decrease in saving and the economy should grow more slowly.
d. There is not enough information to determine what will happen to saving.
6) Investment is
a. the purchase of goods and services.
b. the purchase of capital equipment and structures.
c. when we place our saving in the bank.
d. the purchase of stocks and bonds.
7) Which of the following are financial intermediaries?
a. both banks and mutual funds
b. banks but not mutual funds
c. mutual funds but not banks
d. neither banks or mutual fund
8) A mutual fund
a. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
b. is funds set aside by local governments to lend to small firms who want to invest in projects
that are mutually beneficial to the firm and community.
c. sells stocks and bonds on behalf of small and less known firms who would otherwise have to
pay high interest to obtain credit.
d. is an institution that sells shares to the public and uses the proceeds to buy a selection of
various types of stocks, bonds, or both stocks and bonds.
9) If UK citizens become less concerned with the future and save less at each real interest rate.
a. Real interest rates rise and investment falls
b. Real interest rates rise and investment rises
c. Real interest rates fall and investment falls
d. Real interest rates fall and investment rises
10) The length of time until a bond matures is called the
a. perpetuity.
b. term.
c. maturity.
d. intermediation.
11) Suppose that in a closed economy, GDP is equal to 11,000, taxes are equal to 2,500,
Consumption equals 7,500, and Government purchases equals 2,000. What are private
savings, public savings, and national savings? Is there a budget surplus or deficit?
12) Suppose the government borrows $20 billion more next year than this year.
a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or
fall?
b. What happens to investment? To private saving? To public saving? To national saving?
Compare the size of the changes to the $20 billion of extra government borrowing

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