Question 1

When the demand for loanable funds exceeds the supply of loanable funds, households want to save than firms want to invest and the interest rate .
A)more; rises
B)more; falls
C)less; rises
D)less; falls

Accepted Answer

When the demand for loanable funds exceeds the supply, it means households want to save less than firms want to invest, leading to an increase in interest rates to balance the demand and supply.

Question 2

National saving is:
A)private saving.
B)public saving.
C)private saving plus public saving.
D)private saving minus public saving.

Accepted Answer

National saving is the sum of private saving (saving by households and firms) and public saving (tax revenue minus government spending). Therefore, the correct answer is C which is the sum of private saving and public saving.

Question 3

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, private saving is:
A)300.
B)500.
C)1,000.
D)1,300.

Accepted Answer

Private saving is the amount of income that is not consumed, and not paid as taxes or spent by the government. So, private saving = Income - Consumption - Government spending - Tax revenues = 4,800 - 3,500 - 1,000 - 800 = 500. Therefore, the answer is choice B.

Question 4

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to:
A)300.
B)500.
C)700.
D)1,000.

Accepted Answer

National saving = Disposable income - Consumption - Government spending + Tax revenues= 4,000 - 3,500 - 1,000 + 800= 300

Question 5

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on , the amount of investment spending depends on , and the amount of government spending is determined .
A)the interest rate; disposable income; by tax revenue
B)the real wage; the real rental price of capital; by factor prices
C)labor's share of output; capital's share of output; by the interest rate
D)disposable income; the interest rate; exogenously

Accepted Answer

In a classical model with fixed factors of production and flexible prices, consumption spending depends on disposable income, investment spending depends on the interest rate, and government spending is determined exogenously.

Question 6

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:
A)-200.
B)200.
C)500.
D)1,800.

Accepted Answer

Public saving is calculated as tax revenues minus government spending. Here, it is 800 - 1,000 = -200.

Question 7

Private saving is:
A)income minus consumption minus government spending.
B)disposable income minus consumption.
C)disposable income minus government spending.
D)taxes minus government spending.

Accepted Answer

Private saving is the amount of disposable income (income after taxes and transfers) that is not consumed. Therefore, private saving is disposable income minus consumption.

Question 8

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. No government exists. In this case, the equilibrium real interest rate is:
A)2 percent.
B)5 percent.
C)10 percent.
D)20 percent.

Accepted Answer

At equilibrium, Y = C + I. Substituting the given equations: 5000 = (500 + 0.6*5000) + (2000 - 100r). Solving this gives r = 5 percent.

Question 9

According to the text, the origins of the financial crisis of 2008 can be traced back to a:
A)significant increase in the price of oil.
B)substantial fall in the foreign exchange value of the U.S. dollar.
C)large decline in home prices.
D)huge drop in the stock market.

Accepted Answer

The text states that the origins of the financial crisis of 2008 can be traced back to a large decline in home prices.

Question 10

In equilibrium, total investment equals:
A)private saving.
B)public saving.
C)national saving.
D)household saving.

Accepted Answer

In equilibrium, total investment equals national saving, which is the sum of private saving and public saving.

Question 11

Purchasers of bonds issued by companies are of the company, while purchasers of shares of stock issued by a company are of the company.
A)Acreditors; debtors
B)debtors; creditors
C)creditors; partial owners
D)partial owners; debtors

Accepted Answer

Bondholders are creditors of the company and have lent money to the company. Therefore, they have a claim against the company's assets but are not owners of the company. Shareholders, on the other hand, own a portion of the company and are partial owners. They have a claim on the company's profits, but their investment is subject to risk and fluctuation in value.

Question 12

All of the following are examples of financial intermediaries except:
A)commercial banks.
B)stock exchanges.
C)pension funds.
D)insurance companies.

Accepted Answer

Stock exchanges are not considered financial intermediaries as they simply facilitate buying and selling of securities between buyers and sellers. True financial intermediaries take in funds from savers and lend out those funds to borrowers, earning income from the spread between the interest rate they earn on loans and the interest rate they pay to savers. Commercial banks, pension funds, and insurance companies all act as intermediaries in this way.

Question 13

The demand for loanable funds is equivalent to:
A)national saving.
B)private saving.
C)public saving.
D)investment.

Accepted Answer

The demand for loanable funds represents the amount of funds that borrowers are willing to borrow at different interest rates to finance investment projects. Therefore, it is equivalent to investment, which is the main reason why borrowers demand loanable funds. National, private, and public savings, on the other hand, represent the supply of loanable funds.

Question 14

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6(Y - T). Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:
A)600.
B)1,100.
C)1,500.
D)2,200.

Accepted Answer

The answer of Assume that equilibrium GDP (Y) is 5,000....

Question 15

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 +
0)6Y. No government exists. In this case, equilibrium investment is:
A)1,500.
B)2,000.
C)2,500.
D)3,000.

Accepted Answer

The answer of Assume that equilibrium GDP (Y) is 5,000....

Question 16

Public saving is:
A)income minus consumption minus government spending.
B)disposable income minus consumption.
C)disposable income minus government spending.
D)government revenue minus government spending.

Accepted Answer

Public saving is defined as the difference between government revenue and government spending. This reflects the government's surplus or deficit, depending on whether revenue exceeds spending or vice versa.

Question 17

The supply of loanable funds is equivalent to:
A)national saving.
B)private saving.
C)public saving.
D)investment.

Accepted Answer

The supply of loanable funds represents the amount of saving available in an economy that can be lent out to borrowers for investment. National saving includes private saving (households and businesses) and public saving (government). Therefore, it is the best choice as it encompasses all sources of saving in the economy.

Question 18

If saving exceeds investment demand and consumption is not a function of the interest rate:
A)the demand for loans exceeds the supply of loans.
B)the interest rate will fall.
C)the interest rate will rise.
D)saving will fall.

Accepted Answer

When saving exceeds investment demand, the supply of loanable funds exceeds the demand, driving down the interest rate. If consumption is not a function of the interest rate, there is no adjustment to consumption as a result of changes in interest rates. Therefore, the interest rate will fall until investment equals saving.

Question 19

In the classical model with fixed income, if households want to save more than firms want to invest, then:
A)the interest rate rises.
B)the interest rate falls.
C)output increases.
D)output falls.

Accepted Answer

In the classical model with fixed income, if households want to save more than firms want to invest, the surplus savings would lead to a decrease in the interest rate. This is because the supply of loanable funds (savings) exceeds the demand for those funds (investment), putting downward pressure on the interest rate to balance the market.

Question 20

The supply and demand for loanable funds determines the:
A)real wage.
B)real rental price of capital.
C)real interest rate.
D)nominal interest rate.

Accepted Answer

The supply and demand for loanable funds determines the real interest rate, which is the price borrowers pay to lenders for the use of funds. The real wage and real rental price of capital are determined by supply and demand in the labor and capital markets, respectively, and the nominal interest rate is simply the real interest rate plus expected inflation.

Quiz 3: Interdependence and the Gains From Trade

When the demand for loanable funds exceeds the supply of loanable funds, households want to save than firms want to invest and the interest rate .

National saving is:

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, private saving is:

If disposable income is 4,000, consumption is 3,500, government spending is 1,000, and tax revenues are 800, national saving is equal to:

In a classical model with fixed factors of production and flexible prices, the amount of consumption spending depends on , the amount of investment spending depends on , and the amount of government spending is determined .

If income is 4,800, consumption is 3,500, government spending is 1,000, and tax revenues are 800, public saving is:

Private saving is:

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6Y. Investment (I) is given by the equation I = 2,000 - 100r, where r is the real interest rate in percent. No government exists. In this case, the equilibrium real interest rate is:

According to the text, the origins of the financial crisis of 2008 can be traced back to a:

In equilibrium, total investment equals:

Purchasers of bonds issued by companies are of the company, while purchasers of shares of stock issued by a company are of the company.

All of the following are examples of financial intermediaries except:

The demand for loanable funds is equivalent to:

Assume that equilibrium GDP (Y) is 5,000. Consumption is given by the equation C = 500 + 0.6(Y - T) . Taxes (T) are equal to 1,000. Government spending is 600. In this case, equilibrium investment is:

Assume that equilibrium GDP (Y) is 5,000. Consumption (C) is given by the equation C = 500 + 0) 6Y. No government exists. In this case, equilibrium investment is:

Public saving is:

The supply of loanable funds is equivalent to:

If saving exceeds investment demand and consumption is not a function of the interest rate:

In the classical model with fixed income, if households want to save more than firms want to invest, then:

The supply and demand for loanable funds determines the: