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

Question 1

A budget surplus exists when:

A) taxes are greater than government spending.
B) taxes are less than government spending.
C) taxes are less than government spending plus investment.
D) investment is less than government spending less taxes.

Answer 1

taxes are greater than government spending.

Question 2

Which statement is an example of investment spending in macroeconomics?

A) The owner of a Domino's Pizza store has employed two students to deliver pizzas.
B) The manager of a Domino's Pizza store has deposited cash in the bank.
C) A Domino's Pizza store has purchased a new pizza oven.
D) The owner of the Domino's Pizza store has bought stock in Domino's.

Answer 2

A Domino's Pizza store has purchased a new pizza oven.

Question 3

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?

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

Answer 3

$2 trillion

Question 4

Which statement describes an advantage to the recipient of foreign investment?

A) Foreigners are content to receive lower profits and interest rates than are domestic investors.
B) Foreigners don't expect to receive profits and interest as often as do domestic investors.
C) Domestic firms with foreign investors are exempt from domestic income taxes on a portion of their net income.
D) Foreign companies often bring new technology to the recipient country, which increases productivity.

Question 5

Which example is considered to be investing in a physical asset?

A) purchasing stock in IBM
B) selling stock in IBM
C) buying a bond issued by IBM
D) buying a new factory that produces IBM handheld devices

Question 6

Which source(s) provide(s) funding for private investment spending? I. savings of the owners of a family business
II) profits of a large corporation
III) borrowing

A) I only
B) II only
C) III only
D) I, II, and III

Question 7

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

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

Question 8

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 private saving?

A) $4 trillion
B) $2.5 trillion
C) $3.5 trillion
D) -$0.5 trillion

Question 9

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 national saving?

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

Question 10

Which statement is considered investment spending in macroeconomics?

A) GM builds a new plant.
B) Ryan Jones buys GM stock.
C) Ryan Jones buys GM bonds.
D) Ryan Jones buys GM stock and bonds.

Question 11

Amazon's primary type of investment spending is the purchase of:

A) server farms, or arrays of linked computers.
B) health care for its employees.
C) stock in Yahoo and Google.
D) U.S. Treasury securities.

Question 12

Which source(s) provide(s) funds for Amazon's investment spending? I. investors who purchase shares of stock in the company
II) borrowing from savers

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

Question 13

Physical capital is purchased through investment spending, which in turn is MOSTLY financed out of:

A) taxes.
B) savings.
C) import tariffs.
D) consumption expenditure.

Question 14

Investment spending in macroeconomics refers to:

A) buying stocks.
B) buying newly issued shares of stock.
C) adding to physical capital.
D) adding to one's retirement account.

Question 15

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

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

Question 16

Private savings equals:

A) income after taxes minus consumption.
B) taxes minus government spending on goods and services.
C) the total amount of savings accounts plus stocks plus bonds owned by households.
D) income plus investment.

Question 17

Economists view _____ as investment spending.

A) stocks
B) bonds
C) spending on physical capital
D) mutual fund investing

Question 18

MOST human capital is provided by: I. governments through public education.
II) investment spending by private sector firms.

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

Question 19

The budget balance equals:

A) taxes plus government spending.
B) taxes minus government spending.
C) consumption plus investment.
D) imports minus exports.

Question 20

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. What is the government budget balance?

A) a surplus of $1.5 trillion
B) a deficit of $1.5 trillion
C) a surplus of $0.5 trillion
D) a deficit of $0.5 trillion

Question 21

To help increase investment spending, the government can:

A) lower taxes on consumption so that disposable income rises.
B) lower taxes on the returns from savings so that total savings increase and the interest rate falls.
C) raise taxes on the returns from bonds while lowering taxes on stock dividends.
D) lower taxes on investment spending while raising taxes on savings so that total tax revenue remains constant.

Question 22

In an open economy, total investment equals:

A) national savings plus capital inflow.
B) private savings plus national savings plus capital inflow.
C) private savings plus capital inflow.
D) national savings minus private savings minus capital inflow.

Question 23

In a closed economy, investment spending, I, must equal:

A) GDP - C - G.
B) GDP - C.
C) GDP - C - G - X.
D) GDP - [C * G].

Question 24

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

A) government.
B) national savings.
C) foreign savings.
D) government, domestic savings, and foreign savings.

Question 25

The savings-investment spending identity says that:

A) each person in the economy must invest as much as he or she saves.
B) savings and investment spending are always equal for the economy as a whole.
C) savings must equal government investment for the economy as a whole.
D) each person in the economy must save as much as he or she invests.

Question 26

One difference between a closed and an open economy is that:

A) in the latter, foreign savings complement domestic savings in financing investment spending.
B) in the latter, the government is more open to the idea of financing investment spending than in the former.
C) in the former, foreign savings complement domestic savings in financing investment spending.
D) in the former, foreign savings finance more investment spending than in the latter.

Question 27

In a closed economy, the savings-investment spending identity is:

A) I = GDP - C - G + (IM - NX).
B) NS = GDP + I.
C) NS = GDP + (C - T + TR) + (T - TR -G).
D) I = GDP - C - G.

Question 28

In a closed economy, national savings equals:

A) (disposable income minus consumption spending) minus (tax receipts minus government spending).
B) (disposable income minus consumption spending) plus (government spending minus tax receipts).
C) (disposable income minus consumption spending) plus (tax receipts minus government spending).
D) (consumption spending minus disposable income) plus (government spending minus tax receipts).

Question 29

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. How much is private saving?

A) $4 trillion
B) $2.5 trillion
C) $3.5 trillion
D) $1.5 trillion

Question 30

National savings is the sum of private savings and:

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

Question 31

The government saves when tax revenue:

A) is less than government spending.
B) is more than government spending.
C) equals government spending.
D) is positive.

Question 32

According to the savings-investment spending identity:

A) savings equals investment spending.
B) government spending equals tax receipts.
C) total income equals consumption spending plus savings.
D) savings equals investment spending plus consumption spending.

Question 33

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. How much is national saving?

A) $4 trillion
B) $3.5 trillion
C) $2 trillion
D) $5.5 trillion

Question 34

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. How much is the net capital inflow?

A) $1 trillion
B) $2 trillion
C) $3 trillion
D) $4 trillion

Question 35

The government saves when it:

A) has a balanced budget.
B) has a budget deficit.
C) has a budget surplus.
D) borrows by selling bonds.

Question 36

In a closed economy government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $110 billion this year. Investment spending was $10 billion. As a result:

A) private savings were $10 billion.
B) the government's budget balance was a surplus of $10 billion.
C) there was no net savings.
D) private savings were $20 billion.

Question 37

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

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 38

National savings in a closed economy is NOT:

A) the sum of private savings plus the government budget balance.
B) the total savings in the economy.
C) GDP - C - G.
D) government spending minus consumption.

Question 39

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. What is the government budget balance?

A) a surplus of $1.5 trillion
B) a deficit of $1.5 trillion
C) a deficit of $0.5 trillion
D) a surplus of $3.5 trillion

Question 40

In a closed economy, national savings equals private savings:

A) minus consumption spending.
B) plus the budget balance.
C) minus investment spending.
D) minus tax receipts.

Question 41

Assume that I = S_Private + S_Government + (IM - X). Furthermore, let's say that imports are equal to exports. In this case, private savings:

A) plus government savings exceed investment.
B) exceed investment.
C) plus government savings are less than investment.
D) plus government savings are equal to investment.

Question 42

Which statement is CORRECT?

A) The budget deficit equals tax revenues plus transfer payments.
B) Government spending equals private savings plus the budget deficit.
C) Tax revenues equal national savings plus the budget deficit.
D) The budget deficit equals government spending minus tax revenues.

Question 43

Capital inflow equals:

A) GDP plus exports minus imports.
B) the growth in capital stock minus investment spending.
C) foreign direct investment.
D) the total inflow of foreign funds minus the total outflow of domestic funds.

Question 44

Taxes equal:

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 45

If a country has a trade surplus, we can conclude that it also has a:

A) budget surplus.
B) net capital outflow.
C) net capital inflow.
D) budget deficit.

Question 46

In an open economy, government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, GDP was $100 billion, and investment spending was $10 billion. As a result, there was:

A) a net capital inflow of $10 billion.
B) capital inflows of $10 billion and capital outflows of $20 billion.
C) a trade surplus of $20 billion and a financial deficit of $20 billion.
D) a net capital outflow of $10 billion.

Question 47

Capital inflow into a country is associated with:

A) imports exceeding exports.
B) a small amount of funds available for domestic investment.
C) imports equaling exports.
D) exports exceeding imports.

Question 48

Use the following to answer questions:
(Table: Investment Spending, Private Spending, and Capital Inflows) Use Table: Investment Spending, Private Spending, and Capital Inflows. Northlandia has a _____, while Southlandia has a _____.

A) balanced budget; budget deficit
B) budget deficit; balanced budget
C) budget surplus; balanced budget
D) balanced budget; balanced budget

Question 49

Suppose that there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year. There is a new government, and it imposes taxes on its citizens to spend on infrastructure. Taxes and government spending are both $2 trillion. What is the level of private saving now?

A) $11 trillion
B) $7 trillion
C) $5 trillion
D) $18 trillion

Question 50

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

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

Question 51

Suppose that there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year. There is a new government and it imposes taxes on its citizens to spend on infrastructure. Taxes and government spending are both $2 trillion. What is the level of investment spending now?

A) $7 trillion
B) $5 trillion
C) $18 trillion
D) -$4 trillion

Question 52

National savings equals:

A) private savings plus consumption spending.
B) trade balance plus the budget balance.
C) private savings plus the budget balance.
D) government spending plus taxes.

Question 53

In an open economy, savings CANNOT come from:

A) domestic sources.
B) foreign sources.
C) government sources.
D) consumption.

Question 54

Suppose that there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year. What is the level of investment spending?

A) $18 trillion
B) $7 trillion
C) $25 trillion
D) -$7 trillion

Question 55

Capital inflow is:

A) the net inflow of funds into a country.
B) the net outflow of funds from a country.
C) the amount by which domestic savings exceeds foreign savings.
D) physical capital exported minus physical capital imported.

Question 56

Suppose that there is no trade and no government in a small economy. GDP is $25 trillion, and consumption spending is $18 trillion this year. What is the level of private saving?

A) $7 trillion
B) $18 trillion
C) $43 trillion
D) -$7 trillion

Question 57

Net capital inflow equals:

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

Question 58

The budget balance equals:

A) taxes minus government spending.
B) transfers minus government spending.
C) taxes plus government spending.
D) savings plus taxes.

Question 59

In an open economy, GDP is $12 trillion this year. Consumption is $8 trillion, and government spending is $2 trillion. Taxes are $0.5 trillion. Exports are $1 trillion, and imports are $3 trillion. How much is investment spending?

A) $2 trillion
B) $3 trillion
C) $3.5 trillion
D) $4 trillion

Question 60

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

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

Question 61

The interest rate is 5% in the market for loanable funds. Investors wish to borrow $100 million and savers wish to save $125 million at this interest rate. We would expect the interest rate to _____, as there is a _____ of loanable funds.

A) fall; shortage
B) rise; surplus
C) rise; shortage
D) fall; surplus

Question 62

The supply of loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity supplied of loanable funds.

A) upward; savers; increasing
B) upward; investors; decreasing
C) upward; savers; decreasing
D) downward; investors; increasing

Question 63

If there is an increase in the government budget deficit, the _____ loanable funds will _____, interest rates will _____, and the amount of borrowing will _____.

A) demand for; increase; increase; increase
B) demand for; decrease; decrease; decrease
C) supply of; increase; decrease; increase
D) supply of; decrease; increase; decrease

Question 64

A relatively low saving rate affects productivity growth by:

A) causing a shortage of funds for investment in physical capital.
B) decreasing consumption spending and increasing investment in human capital.
C) reducing the tax base and preventing the government from providing public goods.
D) stimulating imports and increasing the trade deficit.

Question 65

Use the following to answer questions:
(Table: National Income Accounts) Use Table: National Income Accounts. The value of national savings is:

A) $15.9 trillion.
B) $4.9 trillion.
C) $2.1 trillion.
D) $1.6 trillion.

Question 66

Use the following to answer questions:
(Table: National Income Accounts) Use Table: National Income Accounts. The value of investment spending is:

A) $15.9 trillion.
B) $4.9 trillion.
C) $2.1 trillion.
D) -$0.5 trillion.

Question 67

A business will want to borrow to undertake an investment project when the rate of return on that project is _____ rate.

A) lower than the interest
B) higher than the interest
C) higher than the exchange
D) equal to the inflation

Question 68

Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest.

A) the money market
B) the market for loanable funds
C) aggregate demand and aggregate supply
D) the financial system

Question 69

The demand for loanable funds is _____ sloping because _____ respond to lower interest rates by _____ their quantity demanded of loanable funds.

A) downward; investors; increasing
B) downward; savers; increasing
C) upward; investors; decreasing
D) upward; savers; decreasing

Question 70

Use the following to answer questions:
(Figure: Loanable Funds) Use Figure: Loanable Funds. Which scenario might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $150 billion?

A) Consumption as a fraction of disposable income increases.
B) Businesses become more optimistic about the return on investment spending.
C) The federal government has a budget surplus, rather than a budget deficit.
D) There is an increase in capital inflows from other nations.

Question 71

Use the following to answer questions:
(Table: National Income Accounts) Use Table: National Income Accounts. The value of tax revenue is:

A) $1.8 trillion.
B) $4.9 trillion.
C) $2.1 trillion.
D) $1.6 trillion.

Question 72

According to the savings-investment spending identity:

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 73

The government can increase savings by:

A) taxing more than it spends.
B) spending more than it taxes.
C) increasing inflation.
D) increasing the deficit.

Question 74

Use the following to answer questions:
(Table: National Income Accounts) Use Table: National Income Accounts. The value of net capital inflow is:

A) $1.8 trillion.
B) $0.5 trillion.
C) $4.9 trillion.
D) $1.6 trillion.

Question 75

Use the following to answer question 79:
(Table: Loanable Funds) Use Table: Loanable Funds. At what interest rate will the market for loanable funds be in equilibrium?

A) 7%
B) 6%
C) 5%
D) 4%

Question 76

If private savings increase, the _____ loanable funds will _____, interest rates will _____, and the amount of borrowing will _____.

A) demand for; increase; increase; increase
B) demand for; decrease; decrease; decrease
C) supply of; increase; decrease; increase
D) supply of; decrease; increase; decrease

Question 77

The United States is a net recipient of foreign savings.

A) This has never happened before.
B) This is bad because we are borrowing money from overseas.
C) This is bad because we are losing control over our own destiny.
D) This has been true throughout much of our history.

Question 78

GDP is the value of consumption spending _____ investment spending _____ government purchases _____ the value of exports _____ spending on imports.

A) plus; plus; plus; plus
B) plus; plus; plus; minus
C) plus; minus; minus; plus
D) minus; minus; plus; plus

Question 79

The sources of financing of physical capital include:

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

Question 80

Use the following to answer questions:
(Table: National Income Accounts) Use Table: National Income Accounts. The value of private savings is:

A) $1.8 trillion.
B) $0.5 trillion.
C) $2.8 trillion.
D) $1.6 trillion.