Question 1

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

Accepted Answer

When households have a higher saving rate, they are able to accumulate wealth over time. This wealth can then be used for future consumption or to provide economic security in case of unexpected events such as job loss or medical expenses. Higher saving rates do not necessarily lead to greater current consumption as households are choosing to save more instead of spending. It also does not lead to less current income as income remains the same but a portion is being saved rather than spent.

Question 2

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

Accepted Answer

Replacing the income tax with a consumption tax would give people an incentive to save more since they are not being taxed on their income. This would lead to an increase in private saving.

Question 3

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 4

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

Accepted Answer

The investment demand curve shows an inverse relationship between real interest rates and the level of investment spending, all other things being equal. When real interest rates are high, the cost of borrowing increases, making investment less profitable, and therefore lowering the level of investment spending. When real interest rates are low, the cost of borrowing decreases, making investment more profitable, and therefore increasing the level of investment spending.

Question 5

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 6

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 7

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.

Question 8

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 9

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

Accepted Answer

Reducing the tax rate on capital gains and dividends would increase the after-tax return on savings and investments, making saving more attractive. A higher after-tax return would encourage people to save more, which would lead to an increase in private saving.

Question 10

Holding other factors constant, if new technology becomes available that allows machines to produce manufactured goods more quickly and with fewer defects, then the real interest rate will ______ and the equilibrium quantity of national saving and investment will ____.

Accepted Answer

A new, better technology increases business investment and shifts the demand for investment to the right, causing higher interest rates and the quantity of national savings and investment to increase.

Question 11

A decrease in the capital gains tax on income generated through investment in new capital will:

Accepted Answer

A decrease in the capital gains tax on income generated through investment in new capital will increase the after-tax return on investment, leading to a higher demand for investment. Therefore, the demand for investment curve will shift to the right.

Question 12

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

Accepted Answer

Higher saving rates result in greater investment, which ultimately leads to economic growth and higher standards of living. When individuals save more money, there is more available capital to invest in things like new business ventures, infrastructure development, and technological advancements, all of which contribute to economic growth.

Question 13

Crowding out is the tendency for increased government deficits to:

Accepted Answer

Crowding out occurs when increased government deficits lead to higher interest rates, which in turn reduces private investment spending. This is because the government is borrowing more money, increasing demand for loans, and pushing up interest rates, which makes it more costly for businesses to borrow and invest in new projects. As a result, they may choose to delay or scale back their investment plans, which reduces overall investment spending.

Question 14

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.

Quiz 8: Workers, Wages, and Unemployment

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

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 _.

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

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 __.

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 .

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?

Holding other factors constant, if new technology becomes available that allows machines to produce manufactured goods more quickly and with fewer defects, then the real interest rate will __ and the equilibrium quantity of national saving and investment will .

A decrease in the capital gains tax on income generated through investment in new capital will:

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

Crowding out is the tendency for increased government deficits to:

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 _.