Question 1

A decrease in the capital gains tax on income made from new capital investment will:
A)shift the demand for investment curve to the left.
B)shift the demand for investment curve to the right.
C)shift the supply of saving curve to the left.
D)shift the supply of saving curve to the right.

Accepted Answer

More generous tax treatment on new capital investment will encourage investment and shift the demand curve to the right.

Question 2

At the household level, higher saving rates lead to ________ and greater economic security.
A)greater current consumption
B)greater wealth
C)less wealth
D)less current income

Accepted Answer

Higher saving rates lead to greater wealth, as savings is the flow value that increases the stock value of wealth.

Question 3

At the national level, higher saving rates lead to ________ and higher standards of living.
A)greater current consumption
B)slower growth
C)greater investment
D)crowding out

Accepted Answer

Higher saving rates lead to a bigger pool of investment funds, which means more investment and thus, faster growth and higher standards of living.

Question 4

The introduction of a new technology that raises the marginal product of new capital will:
A)decrease real interest rates and increase the equilibrium quantity of saving supplied and demanded.
B)decrease real interest rates and the equilibrium quantity of saving supplied and demanded.
C)increase real interest rates and the equilibrium quantity of saving supplied and demanded.
D)increase real interest rates and decrease the equilibrium quantity of saving supplied and demanded.

Accepted Answer

An increase in the marginal product of capital makes firms more eager to invest. Thus, the advent of the new technology causes the demand for saving to shift upward and to the right.

Quiz 21: Saving and Capital Formation

A decrease in the capital gains tax on income made from new capital investment will:

At the household level, higher saving rates lead to ________ and greater economic security.

At the national level, higher saving rates lead to ________ and higher standards of living.

The introduction of a new technology that raises the marginal product of new capital will: