Question 1

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

Accepted Answer

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

Question 2

Crowding out is the tendency for increased government deficits to:

Accepted Answer

"Crowding out" means that government has competed for investment funds with the private sector, thereby reducing the supply of savings available for private investment. A leftward shift of supply will bid up interest rates and the quantity of investment spending.

Question 3

Holding other factors constant, if a tax cut moves the government budget from a surplus to a deficit, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will ____.

Accepted Answer

When the government increases its deficit it reduces the supply of loanable funds to private businesses, shifting the supply of savings left. The real interest rates increase and the quantity of national savings and investment decrease.

Question 4

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

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 5

Holding other factors constant, if terrorist attacks increase the desire for precautionary saving, then the real interest rate will ______ and the equilibrium quantity of saving and investment will _______.

Accepted Answer

Increased desire for precautionary saving increases the supply of savings, making more investment funds available and decreases the real interest rate. At the same time, the quantity of saving and investment increase.

Question 6

The investment demand curve indicates that there is a(n):

Accepted Answer

The investment demand curve is like other demand curves: it slopes downward showing the inverse relationship between price (real interest rate) and quantity (level of investment spending).

Question 7

Holding other factors constant, if the income tax is replaced with a consumption tax so that saving is not taxed, then the real interest rate will ______ and the equilibrium quantity of saving and investment will _______.

Accepted Answer

The change in tax law will increase the supply of savings, making more investment funds available and decrease the real interest rate. At the same time, the quantity of saving and investment will increase.

Question 8

Which of the following policies would be expected to increase private saving?

Accepted Answer

Currently, the income tax reduces private disposable income, which reduces both private saving and consumption. A consumption tax encourages private saving because income would not be taxes nor would interest earnings.

Question 9

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

Accepted Answer

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

Question 10

Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to saving, then the real interest rate will ______ and the equilibrium quantity of saving and investment will ________.

Accepted Answer

An increase in, or rightward shift of, the supply of savings will decrease real interest rates while the quantity of saving and investment will increase.

Question 11

Which of the following policies would be expected to increase private saving?

Accepted Answer

Reducing taxes on rewards or returns on private savings would induce more people to save.

Question 12

Holding other factors constant, if a change in tax laws discourages people from saving more for retirement, then the real interest rate will ______ and the equilibrium quantity of saving and investment will _____.

Accepted Answer

When people save less for retirement, the supply of savings shift left and real interest rate increases while the quantity of national saving and investment decrease.

Question 13

Holding other factors constant, if growing concerns about job security raise precautionary saving, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will ____.

Accepted Answer

When precautionary saving increases, shifting the supply of savings right, the real interest rate falls but the quantity of, national saving and investment increase.

Question 14

Holding other factors constant, if new environmental regulations increase firms' cost of operating capital, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will ____.

Accepted Answer

New environmental regulations will reduce the desire for business investment, shifting the demand for investment left and decrease real interest rates. At the same time, the quantity of national saving and investment will decrease.

Quiz 8: Saving and Capital Formation

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

Crowding out is the tendency for increased government deficits to:

Holding other factors constant, if a tax cut moves the government budget from a surplus to a deficit, then the real interest rate will __ and the equilibrium quantity of national saving and investment will .

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

Holding other factors constant, if terrorist attacks increase the desire for precautionary saving, then the real interest rate will and the equilibrium quantity of saving and investment will _.

The investment demand curve indicates that there is a(n) :

Holding other factors constant, if the income tax is replaced with a consumption tax so that saving is not taxed, then the real interest rate will and the equilibrium quantity of saving and investment will _.

Which of the following policies would be expected to increase private saving?

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

Holding other factors constant, if employers automatically enroll employees in retirement savings programs in order to overcome psychological barriers to saving, then the real interest rate will and the equilibrium quantity of saving and investment will __.

Which of the following policies would be expected to increase private saving?

Holding other factors constant, if a change in tax laws discourages people from saving more for retirement, then the real interest rate will __ and the equilibrium quantity of saving and investment will _.

Holding other factors constant, if growing concerns about job security raise precautionary saving, then the real interest rate will __ and the equilibrium quantity of national saving and investment will .

Holding other factors constant, if new environmental regulations increase firms' cost of operating capital, then the real interest rate will __ and the equilibrium quantity of national saving and investment will .