Deck 7: Savings and Investment Process

Question 1

Real assets include direct ownership of land, buildings, machinery, inventory, commodities and precious metals.
Not in chapter

Answer 1

True

Question 2

Gross private domestic investment measures a nation's output of goods and services for a specified period of time.

Answer 2

False

Question 3

17 21.The federal debt of the United States is owned to a large extent by foreign institutions and individuals.

Answer 3

False

Question 4

Savings surplus occurs when an economic unit has current income that exceeds its direct investment in real assets.

Question 5

Capital consumption allowances are estimates of the "using up" of plant equipment assets for businesses.

Question 6

The federal government relies primarily on borrowing to support its various expenditure programs.

Question 7

The federal government relies primarily on income taxes and social insurance taxes for its revenues.

Question 8

BDirect benefit payments for individuals amount to over half of total expenditures of the federal government.

Question 9

Consumption is reflected by the sum of personal consumption expenditures and government purchases of goods and services.
Too fine a distinction between C vs PCE, IMHO

Question 10

Indirect financing involves the use of securities that represent specific contracts between the savers and borrowers themselves.
Not in chapter

Question 11

Real assets include indirect ownership of land, buildings, machinery, inventory, commodities, and precious metals.
Could not find "real assets" and "indirect" in the chapter….possibly in another chapter?

Question 12

GDP includes personal consumption expenditures, government purchases of goods and services, gross private domestic investment, and net exports of goods and services.

Question 13

Personal consumption expenditures indicate expenditures by individuals for durable goods, nondurable goods, and services.

Question 14

New York Stock Exchange is an example of a primary market.
Not in this chapter.

Question 15

Government purchases include only expenditures for goods and services by the federal government.

Question 16

Local governments depend heavily on property taxes for their revenues, while state governments depend largely on sales taxes and special taxes, such as those on tobacco products.

Question 17

If the imports of goods and services exceed exports, GDP will be higher.

Question 18

Savings surplus occurs when all of an economic unit's income is not consumed, but held in the form of cash and other financial assets.

Question 19

Gross private domestic investment (GPDI) measures fixed investment in residential and nonresidential structures, producers' durable equipment, and changes in business inventories.

Question 20

Gross investment may or may not equal gross savings.
So what is it asking? Not sure this is directly mentioned in the text, either.

Question 21

Direct financing involves the use of securities that represent specific contracts between savers and borrowers.

Question 22

Years of budget surpluses during the Reagan and first Bush presidencies changed into deficits under the Clinton presidency.

Question 23

In general, the savings rate in the United States has decreased during the past 40 years.

Question 24

The corporate retention rate is simply another term for the corporate savings rate.

Question 25

Contractual savings are financial assets set aside for use in the future.

Question 26

Voluntary savings are financial assets set aside for use in the future.

Question 27

Foreign capital did not play a significant role in the development of the United States.

Question 28

Capital formation is the process of constructing real property, manufacturing producers' durable equipment, and increasing business inventories.

Question 29

When taxes and general revenues fail to meet expenditures, a budgetary deficit occurs.

Question 30

By definition, gross investment must equal gross savings.
Not in chapter

Question 31

Financial assets include ownership of land, buildings, machinery, inventory, commodities, and precious metals.

Question 32

The federal debt is the same thing as the budget deficit.

Question 33

Savings are impacted only by cyclical movements in the economy.

Question 34

Corporate saving for short-term working capital purposes is the most important reason for businesses accumulating financial assets.

Question 35

Undistributed profit is the proportion of after-tax profit paid as dividends to shareholders by a corporation.

Question 36

Indirect financing involves the use of securities such as corporate stocks and bonds that represent specific contracts between the savers and borrowers themselves.
Not in chapter

Question 37

At present, receipts of social insurance taxes received exceed payments made.However, it is expected that this situation will be reversed within the next two years.
Empirical, variable, and not in the chapter

Question 38

The largest proportion of government revenue comes from corporate income taxes.

Question 39

Financial assets include claims in the form of obligations or liabilities issued by individuals, businesses, financial intermediaries, and governments.

Question 40

Indirect financing is financing created by an intermediary that involves separate instruments with lenders and borrowers.

Question 41

Which one of the following borrowing sectors is the least important in terms of funds raised in the credit markets?

A)U.S.markets
B)state and local governments
C)households
D)farms
E)corporate

Question 42

Which one of the following instruments is the least important in terms of funds raised in the credit markets?

A)U.S.government securities
B)tax-exempt obligations
C)corporate bonds
D)mortgages

Question 43

Which of the following represent the most important instrument used to raise funds in the credit markets?

A)corporate bonds
B)tax-exempt obligations
C)consumer debt
D)mortgages

Question 44

Capital formation refers to the:

A)total accumulation of monetary savings in the nation
B)distribution of savings among thrift institutions
C)total of capital stockequity accounts with business corporations
D)creation of physical productive facilities

Question 45

Capital market securities are debt securities with maturities less than one year and corporate stocks.

Question 46

A business loan to Joe's Hardware Store by a bank represents which of the following?

A)a liability of the bank and an asset to Joe's
B)a liability of the bank and a liability to Joe's
C)liability to the bank and capital to Joe's
D)liability to Joe's and capital to the bank
E)none of the above

Question 47

Financial assets include all except which of the following:

A)productive facilities
B)time deposits
C)business loans
D)consumer loans

Question 48

A derivative security is a financial contract that derives its value from a bond, stock, or other asset.

Question 49

Which of the following would not be holders of financial assets?

A)state governments
B)U.S.government
C)local governments
D)all might hold financial assets
E)none of the above hold financial assets

Question 50

The primary factors that influence the total amount of savings in an economy in any given period include the trade surplus or deficit and exchange rates.

Question 51

A business loan to Joe's Hardware Store by a bank represents which of the following?

A)a liability of the bank and an asset to Joe's
B)an asset of the bank and a liability to Joe's
C)liability to the bank and capital to Joe's
D)liability to Joe's and capital to the bank

Question 52

Securitization is the process of insuring mortgage loans against default.

Question 53

Gross Private Domestic Investment (GPDI) measures fixed investment in:

A)residential and non-residential structures
B)individual expenditures for nondurable goods
C)individual expenditures for services
D)none of the above

Question 54

Greater potential savings would result from a (n):

A)age distribution shift to more teenagers
B)shift to more elderly people in the total population
C)shift to more young married couples
D)shift to more middle-aged families

Question 55

A business deposit in a commercial bank represents?

A)a liability of the bank and an asset to the business
B)an asset of the bank and a liability to the business
C)liability to the bank and capital to the business
D)liability to Joe's and capital to the business

Question 56

If personal consumption expenditures are $1 billion, government purchases are $2 billion, gross private domestic investments are $4 billion and net exports are $5 billion, then GDP is:

A) $12 billion
B) $8 billion
C) $7 billion
D) $2 billion

Question 57

If personal consumption expenditures are $6 billion, government purchases are $10 billion, gross private domestic investments are $4 billion and net exports are $negative 3 billion, then GDP is:

A) $23 billion
B) $20 billion
C) $17 billion
D) $16 billion
E) none of the above

Question 58

Tax reform in the form of lower personal income tax rates in the mid-1960s and in the 1970s may have contributed to a higher personal savings rate.

Question 59

Capital formation refers to the:

A)total accumulation of monetary savings in the nation
B)distribution of savings among thrift institutions
C)total of capital stock accounts with business corporations
D)the construction of buildings in a country's capital city
E)none of the above "clone" or duplicate of above with none of the above as the answer.

Question 60

Early developments in transportation were ultimately financed by:

A)private promoters
B)current government revenues
C)savings of individuals
D)foreign securities

Question 61

Which of the following categories is not considered to be one of the four basic economic units in the U.S.financial system?

A)business firms
B)financial intermediaries
C)governments
D)not-for-profit organizations
E)all are considered among the four basic economic units of the financial system

Question 62

A saver who chooses securities as a savings medium and desires maximum safety of principal buys:

A)public utility stocks
B)corporate stocks
C)high-grade corporate bonds
D)government bonds

Question 63

The accumulation of reserves in insurance and pension funds is referred to as what type of savings?

A)voluntary savings
B)forced savings
C)real savings
D)none of the above

Question 64

Direct securities:

A)are contracts between savers and institutions
B)are deposited directly into an investor's account
C)represent the financial asset of the borrower and the claim on the saver
D)represent the claim on the institution
E)none of the above

Question 65

The process of balancing savings surplus and savings deficit units by channeling savings into investment through a financial intermediary does not result in the:

A)individuals receiving safety of principal, liquidity, and a return on their savings
B)business firm anticipating earning a return on its investment in real assets that is lower than the interest cost on the institution loan
C)intermediary being compensated for facilitating the savings and investment process
D)creation of two types of financial assets and two types of financial liabilities

Question 66

What type of investment occurs when claims to wealth in the form of financial assets are purchased or when debt obligations are repaid?

A)financial investment
B)real investment
C)contractual investment
D)voluntary investment

Question 67

Government-held reserves which are invested primarily in the in the obligations of federal, local, and state governments include:

A)life insurance
B)pension funds
C)retirement funds
D)money market funds

Question 68

If an individual supplies funds to a business firm by purchasing bonds issued by the firm, the transaction:

A)creates two types of financial assets and two types of financial liabilities
B)increases the liquidity and safety of principal for the individual
C)initially occurs in the primary market
D)limits the ability of the security to be sold in the secondary market

Question 69

During the early years of the life stage of a typical corporation, the:

A)volume of physical assets increases slowly
B)firm is unable to establish a strong position with respect to its financial assets
C)corporation is a heavy provider of financial assets
D)need for borrowed capital is small

Question 70

A saver who chooses securities as a savings medium and desires maximum growth of principal buys:

A)public utility stocks
B)corporate stocks
C)high-grade corporate bonds
D)government bonds

Question 71

Direct securities:

A)are contracts between savers and institutions
B)are contracts between savers and borrowers
C)represent the financial asset of the borrower and the claim on the saver
D)represent the claim on the institution

Question 72

Financial assets include all except which of the following:

A)common stocks
B)time deposits
C)business loans
D)consumer loans
E)all of the above are financial assets

Question 73

Motivations for individuals to deposit money into a savings account include: OK….but savings accounts are in the section "How This Chapter Applies to Me" not in the body of the chapter.

A)safety of principal
B)return on investment
C)liquidity
D)all the above
E)none of the above

Question 74

What type of investment occurs when claims to wealth in the form of real assets are created or acquired?

A)financial investment
B)real investment
C)contractual investment
D)voluntary investment

Question 75

If an individual supplies funds to a business firm by purchasing bonds issued by the firm, the transaction:

A)creates two types of financial assets and two types of financial liabilities
B)increases the liquidity and safety of principal for the individual
C)initially occurs in the primary market
D)limits the ability of the security to be sold in the secondary market
E)all of the above

Question 76

Which of the following categories is not considered to be one of the four basic economic units in the U.S.financial system?

A)business firms
B)financial intermediaries
C)governments
D)not-for-profit organizations

Question 77

The short-term accumulation of financial assets on the part of business corporations: None of the above clone of prior item.

A)are primarily held in derivative securities
B)add to the level of long-term savings of the economy as a whole
C)do not enter the monetary stream to fund consumers, government, or other businesses
D)are held in the form of long-term obligations of the federal government
E)none of the above

Question 78

The short-term accumulation of financial assets on the part of business corporations:

A)are held in short-term, safe, and liquid debt obligations
B)add to the level of long-term savings of the economy as a whole
C)do not enter the monetary stream to fund consumers, government, or other businesses
D)are held in the form of long-term obligations of the federal government

Question 79

The accumulation of reserves in insurance and pension funds is referred to as what type of savings?

A)voluntary savings
B)contractual savings
C)real savings
D)all of the above

Question 80

If an individual supplies funds to a business firm by purchasing bonds issued by the firm, the transaction:

A)creates two types of financial assets and two types of financial liabilities
B)increases the liquidity and safety of principal for the individual
C)initially occurs in the secondary market
D)limits the ability of the security to be sold in the secondary market
E)none of the above