Question 1

The saving of the government sector is called ________ saving.
A)private
B)public
C)national
D)aggregate

Accepted Answer

The saving of the government sector is called public saving.

Question 2

Where Y is GDP, C is consumption, I is investment, (G )is government spending, (T )is net taxes, and there is no international trade, public saving equals:
A)T - G.
B)Y - T - C.
C)Y + T - G.
D)Y - C - T.

Accepted Answer

Public saving considers net taxes (T)to be government receipts, and (G)to be government spending. Thus, T - G is public saving.

Question 3

Suppose the following information describes the economy: $$\begin{array} { l | r } 
\hline \text { Consuruption } & 8,000 \
\hline \text { Irvestruent } & 1,000 \
\hline \text { Goverument purchases } & 1,000 \
\hline \text { Net exports } & \mathbf { 0 } \
\hline \text { Goverment trarsfers ard interest paymerits } & 500 \
\hline \text { Goverment tax collections } & 1700
\end{array}$$  
Private saving equals ________; public saving equals ________; national saving equals ________.
A)800; 200; 600
B)800; 200; 1,000
C)1,000; 800; 1,000
D)1,500; 700; 2,700

Accepted Answer

Private saving is calculated as income minus consumption and taxes plus government transfers. Here, income is the sum of consumption, investment, and government purchases (8000 + 1000 + 1000 = 10,000). So, private saving = 10,000 - 8,000 - 1,700 + 500 = 800. Public saving is government tax collections minus government purchases and transfers (1700 - 1000 - 500 = 200). National saving is the sum of private and public saving, which equals 800 + 200 = 1,000.

Question 4

Payments by the government to the public for which the government receives no current goods or services in return are called:
A)public saving.
B)net taxes.
C)transfer payments.
D)capital losses.

Accepted Answer

Transfer payments are payments by the government to the public for which the government receives no current goods or services in return.

Question 5

Public saving is negative when:
A)there is a government budget surplus.
B)there is a government budget deficit.
C)the government's budget is balanced.
D)after-tax income of households and businesses is greater than consumption expenditures.

Accepted Answer

In those cases where G - T is positive (and T - G is negative), there is a government deficit and negative public saving.

Question 6

When government runs a budget deficit, it makes up the difference by:
A)issuing government bonds.
B)paying down outstanding debt.
C)increasing transfer payments.
D)increasing public saving.

Accepted Answer

Like a household, when government spends more than it takes in it must borrow to make up the difference.

Question 7

Where Y is GDP, C is consumption, I is investment, (G )is government spending, (T )is net taxes, and there is no international trade, the government budget deficit equals:
A)T - G.
B)Y - G.
C)Y + T - G.
D)G  - T.

Accepted Answer

In this closed economy, government spending (G)minus net taxes (T)is the definition of budget deficit. If this were a negative number, it would be a government surplus.

Question 8

An increase in net taxes (taxes paid by the private sector to the government less transfer payments and interest payments made by the government to the private sector)will:
A)increase private saving.
B)decrease public saving.
C)increase public saving.
D)reduce investment in new capital equipment.

Accepted Answer

If governments raise tax revenues but do not spend the revenues, then public savings increases.

Question 9

Based on the following information, what is the amount of public saving? $$\begin{array} { | l | c | c | } 
\hline & \text { Receipts } & \text { Expenditures } \
\hline \text { Federal and Goverment } & 2,500 & 2,000 \
\hline \text { State ard Local Goverrments } & 1,200 & 1,500 \
\hline
\end{array}$$  
A)+3,700
B)+2,500
C)+200
D)-300

Accepted Answer

Public saving is calculated as the total receipts minus total expenditures for both the federal government and state and local governments. Here, (2,500 + 1,200) - (2,000 + 1,500) = 3,700 - 3,500 = 200.

Question 10

The excess of government spending over tax collections is:
A)national income.
B)national saving.
C)national wealth.
D)the government budget deficit.

Accepted Answer

When the government spends more than the taxes it collects, there is a budget deficit and public savings will be negative.

Question 11

Social Security benefits, welfare payments, and farm support payments are examples of:
A)consumption spending.
B)public interest payments.
C)investment spending.
D)transfer payments.

Accepted Answer

The payments listed do not require any production by the recipient, so they are "transfer payments."

Question 12

Saving by households and businesses is called ________ saving.
A)private
B)public
C)national
D)aggregate

Accepted Answer

This is the definition of "private saving."

Question 13

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals:
A)C + I + G - T.
B)Y - T - C.
C)Y -T - G.
D)Y - C - I.

Accepted Answer

In this closed economy, private saving equals GDP minus taxes minus consumption.

Question 14

Suppose the following information describes the economy: $\begin{array}{l|r}
\text { GDP } & 2,000 \
\hline \text { Consumption } & 1,500 \
\hline \text { Government spending } & 300 \
\hline \text { Net taxes } & 400
\end{array}$  
Private saving equals ________; public saving equals ________; national saving equals ________.
A)100; 200; 100
B)100; 100; 200
C)200; 100; 300
D)200; 100; 500

Accepted Answer

Private saving is GDP - Consumption - Net taxes = 2000 - 1500 - 400 = 100. Public saving is Net taxes - Government spending = 400 - 300 = 100. National saving is Private saving + Public saving = 100 + 100 = 200.

Question 15

If net taxes paid by households increase:
A)private saving will decrease.
B)private saving will increase.
C)public saving will decrease.
D)transfer payments to households will decrease.

Accepted Answer

When households pay higher taxes they have less available for private saving.

Question 16

Public saving is positive when:
A)there is a government budget surplus.
B)after-tax income of households and businesses is less than consumption expenditures.
C)the government's budget is balanced.
D)after-tax income of households and businesses is greater than consumption expenditures.

Accepted Answer

In cases where T - G is positive, there is a government surplus and hence, a budget surplus.

Question 17

Public saving is:
A)increased when the government budget deficit rises.
B)identical to the government budget surplus.
C)less important to national saving than private saving.
D)more important to national saving than private saving.

Accepted Answer

Public saving is the amount of the public sector's income not spent on current needs. Thus, when public saving is positive, the government budget is in surplus.

Question 18

When the government runs a budget surplus, it uses the funds to:
A)issue bonds.
B)pay down outstanding debt.
C)decrease transfer payments.
D)decrease public saving.

Accepted Answer

When the government runs a budget surplus, it can reduce taxes, increase transfer payments, or pay down outstanding debt. It usually does the latter.

Question 19

Private saving is positive when:
A)there is a government budget surplus.
B)there is a government budget deficit.
C)the government's budget is balanced.
D)after-tax income of households and businesses is greater than consumption expenditures.

Accepted Answer

This is the definition of "private saving."

Question 20

Which of the following is correct?
A)National saving equals private saving plus public saving.
B)Public saving equals national saving plus private saving.
C)Private saving equals national saving plus public saving.
D)National saving equals public saving minus private saving.

Accepted Answer

National saving comes from two sources, private saving and public saving.

Quiz 21: Saving and Capital Formation

The saving of the government sector is called ________ saving.

Where Y is GDP, C is consumption, I is investment, (G ) is government spending, (T ) is net taxes, and there is no international trade, public saving equals:

Payments by the government to the public for which the government receives no current goods or services in return are called:

Public saving is negative when:

When government runs a budget deficit, it makes up the difference by:

Where Y is GDP, C is consumption, I is investment, (G ) is government spending, (T ) is net taxes, and there is no international trade, the government budget deficit equals:

An increase in net taxes (taxes paid by the private sector to the government less transfer payments and interest payments made by the government to the private sector) will:

Based on the following information, what is the amount of public saving? $\begin{array} { | l | c | c | } \hline & \text { Receipts } & \text { Expenditures } \\\hline \text { Federal and Goverment } & 2,500 & 2,000 \\\hline \text { State ard Local Goverrments } & 1,200 & 1,500 \\\hline\end{array}$

The excess of government spending over tax collections is:

Social Security benefits, welfare payments, and farm support payments are examples of:

Saving by households and businesses is called ________ saving.

Where Y is GDP, C is consumption, I is investment, G is government spending, T is net taxes, and there is no international trade, private saving equals:

Suppose the following information describes the economy: $\begin{array}{l|r}\text { GDP } & 2,000 \\\hline \text { Consumption } & 1,500 \\\hline \text { Government spending } & 300 \\\hline \text { Net taxes } & 400\end{array}$ Private saving equals ; public saving equals ; national saving equals .

If net taxes paid by households increase:

Public saving is positive when:

Public saving is:

When the government runs a budget surplus, it uses the funds to:

Private saving is positive when:

Which of the following is correct?