Question 1

If GDP = r₁ 000, consumption = R600, taxes = r₁00, and government purchases = R200, how much is saving and investment?

Accepted Answer

A)  saving = R300, investment = R300
B)  saving = R200, investment = r₁00
C)  saving = r₁00, investment = R200
D)  saving = r₀, investment = r₀
E)  saving = R200, investment = R200F) B) and E)
G) A) and E)

Question 2

Which of the following sets of government policies is the most growth oriented?

Accepted Answer

A)  Lower taxes on the returns to saving, provide investment tax credits, and lower the deficit.
B)  Increase tax on the returns to saving, provide investment tax credits, and increase the deficit.
C)  Increase tax on the returns to saving, provide investment tax credits, and lower the deficit.
D)  Lower taxes on the returns to saving, provide investment tax credits, and increase the deficit.E) B) and C)
F) A) and D)

Question 3

The quantity supplied of loanable funds is greater if real interest rates are higher.

Accepted Answer

A) True 
 B)False

Question 4

Bond markets allow firms to pursue

Accepted Answer

A)  equity financing.
B)  debt financing.
C)  limited growth policies.
D)  government loans and subsidy programmes.E) A) and D)
F) A) and C)

Question 5

In a closed economy, saving is what remains after consumption expenditures and government purchases.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following financial market securities would probably pay the highest interest rate?

Accepted Answer

A)  A bond issued by a large, well-established (blue chip)  company.
B)  A bond issued by a start-up company in a newly emerging industry.
C)  A government bond issued by the government of France.
D)  They would all pay about the same rate of interest.E) C) and D)
F) All of the above

Question 7

Why were Collateralized Debt Obligations (CDOs) based on residential mortgages developed, and why did they fail?

Accepted Answer

CDOs based on residential mortgages were...

Question 8

When interest rates rise, the quantity of loanable funds demanded by

Accepted Answer

A)  firms decreases.
B)  government decreases.
C)  firms increases.
D)  government increases.E) A) and B)
F) A) and D)

Question 9

If an asset functions as a medium of exchange it

Accepted Answer

A)  holds its value over a long period of time.
B)  can be used by people to pay for transactions.
C)  can be used by firms for debt financing.
D)  can be used by firms for equity financing.E) A) and D)
F) C) and D)

Question 10

A(n)  __________ allows a firm to decrease its tax liability by a fraction of the investment it makes during a particular period.

Accepted Answer

A)  tax on corporate profits
B)  tax on retained earnings
C)  investment tax credit
D)  personal income taxE) B) and D)
F) All of the above

Question 11

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

Accepted Answer

A)  intermediation.
B)  equity finance.
C)  crowding out.
D)  the investment fund effect.E) None of the above
F) B) and C)

Question 12

A close friend with surplus money wants to buy either stock or bonds in Real Oak Furniture plc, which manufactures wooden furniture.He wants your advice on whether to buy stock or bonds.Explain how each of his quotes below should affect his choice between the stock and the bond.
a."I have reason to believe that people are soon going to find rocking chairs have health benefits."
b."I would like to tell people I am part owner of Real Oak Furniture plc."
c."I do not want to take on much risk."

Accepted Answer

a.Presumably, when this happens, unless ...

Question 13

Investment is

Accepted Answer

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.E) C) and D)
F) B) and D)

Question 14

The government budget deficit is

Accepted Answer

A)  the difference between government purchases and government revenues from bonds and taxes.
B)  caused by a lack of business sector investment.
C)  created when the government expenditures exceed net taxes.
D)  caused by leakages in the economy.E) A) and C)
F) B) and C)

Question 15

Households make their savings available to borrowers through

Accepted Answer

A)  resource markets.
B)  the loanable funds market.
C)  the labour market.
D)  taxes.E) A) and B)
F) All of the above

Question 16

Investment is the purchase of capital equipment and structures.

Accepted Answer

A) True 
 B)False

Question 17

An increase in the budget deficit is

Accepted Answer

A)  an increase in public saving.
B)  a decrease in private saving.
C)  an indication of a spendthrift government.
D)  a decrease in public saving.
E)  an increase in private saving.F) C) and D)
G) A) and B)

Question 18

An increase in the budget surplus shifts the

Accepted Answer

A)  supply of loanable funds to the left and increases the real interest rate.
B)  supply of loanable funds to the right and reduces the real interest rate.
C)  demand for loanable funds to the right and increases the real interest rate.
D)  demand for loanable funds to the left and reduces the real interest rate.E) All of the above
F) A) and B)

Question 19

National saving (or just saving)  is equal to

Accepted Answer

A)  None of these answers.
B)  investment + consumption expenditures.
C)  private saving + public saving.
D)  GDP - government purchases.
E)  GDP + consumption expenditures + government purchases.F) A) and E)
G) All of the above

Question 20

Consider a closed economy (with no foreign trade) .Assuming the economy was in equilibrium, use the following information to determine the government's budget deficit or surplus.   Consumption Spending €350 billion  Net Taxes  R270 billion  Household Saving  R250 billion  Investment Spending  R220 billion \begin{array}{ll}	ext { Consumption Spending } & € 350 	ext { billion } \	ext { Net Taxes } & 	ext { R270 billion } \	ext { Household Saving } & 	ext { R250 billion } \	ext { Investment Spending } & 	ext { R220 billion }\end{array} Consumption Spending  Net Taxes  Household Saving  Investment Spending ​€350 billion  R270 billion  R250 billion  R220 billion ​  The government's deficit (surplus)  was

Accepted Answer

A)  R30 billion surplus.
B)  R20 billion surplus.
C)  R30 billion deficit.
D)  R50 billion deficit. E) B) and C)
F) B) and D)

Exam 7: Saving, Investment and the Financial System

Bond markets allow firms to pursue

Correct Answer
verified

The quantity supplied of loanable funds is greater if real interest rates are higher.

Correct Answer
verified

Investment is

Correct Answer
verified

When interest rates rise, the quantity of loanable funds demanded by

Correct Answer
verified

If an asset functions as a medium of exchange it

Correct Answer
verified

Which of the following sets of government policies is the most growth oriented?

Correct Answer
verified

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

Correct Answer
verified

Correct Answer
verified

The government budget deficit is

Correct Answer
verified

Which of the following financial market securities would probably pay the highest interest rate?

Correct Answer
verified

A(n) __________ allows a firm to decrease its tax liability by a fraction of the investment it makes during a particular period.

Correct Answer
verified

Correct Answer
verified
a.Presumably, when this happens, unless ...
View Answer

An increase in the budget surplus shifts the

Correct Answer
verified

An increase in the budget deficit is

Correct Answer
verified

Households make their savings available to borrowers through

Correct Answer
verified

Investment is the purchase of capital equipment and structures.

Correct Answer
verified

National saving (or just saving) is equal to

Correct Answer
verified

Why were Collateralized Debt Obligations (CDOs) based on residential mortgages developed, and why did they fail?

Correct Answer
verified
CDOs based on residential mortgages were...
View Answer

In a closed economy, saving is what remains after consumption expenditures and government purchases.

Correct Answer
verified

If GDP = r₁ 000, consumption = R600, taxes = r₁00, and government purchases = R200, how much is saving and investment?

Correct Answer
verified

Exam 7: Saving, Investment and the Financial System

Bond markets allow firms to pursue

Correct AnswerverifiedShow Answer

The quantity supplied of loanable funds is greater if real interest rates are higher.

Correct AnswerverifiedShow Answer

Investment is

Correct AnswerverifiedShow Answer

When interest rates rise, the quantity of loanable funds demanded by

Correct AnswerverifiedShow Answer

If an asset functions as a medium of exchange it

Correct AnswerverifiedShow Answer

Which of the following sets of government policies is the most growth oriented?

Correct AnswerverifiedShow Answer

If an increase in the budget deficit reduces national saving and investment, we have witnessed a demonstration of

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The government budget deficit is

Correct AnswerverifiedShow Answer

Which of the following financial market securities would probably pay the highest interest rate?

Correct AnswerverifiedShow Answer

A(n) __________ allows a firm to decrease its tax liability by a fraction of the investment it makes during a particular period.

Correct AnswerverifiedShow Answer

Correct Answerverifieda.Presumably, when this happens, unless ...View AnswerShow Answer

An increase in the budget surplus shifts the

Correct AnswerverifiedShow Answer

An increase in the budget deficit is

Correct AnswerverifiedShow Answer

Households make their savings available to borrowers through

Correct AnswerverifiedShow Answer

Investment is the purchase of capital equipment and structures.

Correct AnswerverifiedShow Answer

National saving (or just saving) is equal to

Correct AnswerverifiedShow Answer

Why were Collateralized Debt Obligations (CDOs) based on residential mortgages developed, and why did they fail?

Correct AnswerverifiedCDOs based on residential mortgages were...View AnswerShow Answer

In a closed economy, saving is what remains after consumption expenditures and government purchases.

Correct AnswerverifiedShow Answer

If GDP = r₁ 000, consumption = R600, taxes = r₁00, and government purchases = R200, how much is saving and investment?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
a.Presumably, when this happens, unless ...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
CDOs based on residential mortgages were...
View Answer

Correct Answer
verified

Correct Answer
verified