Question 1

When government spending is less than net taxes:

Accepted Answer

When government spending is less than net taxes, it means that there is more revenue than expenditure, resulting in a budget surplus. A budget surplus occurs when the government has more funds available than it spends. This surplus can be used to pay off debts or invested back into the economy.

Question 2

If capital inflow is negative,then a country:

Accepted Answer

The answer of If capital inflow is negative,then a country:
...

Question 3

In lending to Vanessa,Alison expects the inflation rate to be 8% over the next year.Vanessa agrees to pay Alison a 10% interest rate on the loan,but Vanessa expects inflation to be 9%.If the actual inflation rate is 9%:

Accepted Answer

The answer of In lending to Vanessa,Alison expects the inflation...

Question 4

In the loanable funds market,borrowers:

Accepted Answer

Borrowers represent the demand for loanable funds as they are in need of funds. On the other hand, suppliers of loanable funds, who receive interest income, represent the supply side of the market. Therefore, option C is correct. Option A is incorrect as supply of loanable funds represent savers, not borrowers. Option B is incorrect as borrowers are affected by changes in inflation rates. Option D is unrelated to the loanable funds market.

Question 5

Linking savers and investors is an important aspect of:

Accepted Answer

Linking savers and investors is a key function of financial intermediaries and markets, which are important components of a well-functioning financial system. The efficient allocation of capital from savers to investors is essential for economic growth and development, and helps to facilitate investment and entrepreneurship. Government, the public sector, and consumers are not directly involved in this process.

Question 6

Financial assets:

Accepted Answer

Financial assets are paper claims, such as stocks, bonds, or derivatives, that provide the buyer with future income from the seller. The value of these assets fluctuates based on market conditions and can carry financial risk. Loans, on the other hand, are typically classified as liabilities rather than assets. While there may be transaction costs associated with buying and selling financial assets, they are generally considered to be lower than those associated with other types of assets, such as real estate.

Question 7

In an open economy:

Accepted Answer

In an open economy, foreign savings may support investment spending through capital inflows. A positive capital inflow means that capital is flowing into the country from abroad, indicating that foreigners are investing in the country's assets or infrastructure. This inflow of capital can support investment spending and lead to economic growth. Therefore, Choice B is the best answer. Choices A, C, and D are all incorrect statements in terms of capital inflows in an open economy.

Question 8

Crowding out results in a(n):

Accepted Answer

Crowding out occurs when increased government spending results in less available funds for private investment, leading to a decrease in private investment spending. Therefore, choice A is the correct answer. Choice B is incorrect as crowding out results in a decrease in private investment spending, not an increase in accumulation of physical capital. Similarly, choice C is incorrect as crowding out results in a decrease in private investment spending, not an increase. Choice D is also incorrect as crowding out does not lead to an increase in consumption spending.

Question 9

A government has a budget deficit in an open economy.This means that:

Accepted Answer

A budget deficit means that the government is spending more than its tax revenue, which leads to an increase in government borrowing. In an open economy, this borrowing may be financed by borrowing from foreign lenders or by selling government bonds to foreign investors, which can increase the country's net foreign liabilities.

Question 10

In the loanable funds market,savers:

Accepted Answer

In the loanable funds market, savers are the suppliers of funds. They save their money in banks, financial institutions, or invest in various financial instruments, thereby increasing the supply of funds available for borrowers to borrow. So, option B is the correct choice.

Question 11

Holding everything else constant,when the government uses an expansionary policy in the presence of a deficit,it will result in a(n):

Accepted Answer

An expansionary policy typically involves increased government spending or tax cuts, which can lead to higher demand for loanable funds, thus increasing the equilibrium interest rate.

Question 12

When portions of investment spending are financed by a capital inflow:

Accepted Answer

When a capital inflow is used to finance investment spending, interest is typically paid to the foreign investor for the use of those funds. This is because the funds are coming from abroad and the investors are entitled to a return on their investment. Options A, C, and D are not accurate in this scenario.

Question 13

If a country has a positive capital inflow,it:

Accepted Answer

The answer of If a country has a positive capital...

Question 14

Alison lends $100 to Vanessa for 1 year.Alison expects that inflation will be 10%.If Alison wishes to maintain the real value of her $100,she should expect payment from Vanessa in the amount of:

Accepted Answer

To maintain the real value of her $100 after 10% inflation, Alison should expect $110, as this amount compensates for the decrease in purchasing power due to inflation.

Question 15

The budget balance equals:

Accepted Answer

The budget balance represents the difference between government revenue (primarily from taxes) and spending. Therefore, it is equal to taxes minus government spending.

Question 16

Suppose an investment project is projected to provide $200 000 in revenues.The investment will cost the company $180 000.Given this information,one should commit to the project:

Accepted Answer

The decision to commit to an investment project depends on the expected return on investment, which is calculated as the difference between the expected revenues and the cost of the project, discounted by the interest rate. In this case, the expected return on investment is $20,000 ($200,000 - $180,000). Therefore, if the interest rate is less than or equal to 11%, the project would be profitable, as the discounted value of the return on investment would be greater than the cost of the project. However, if the interest rate is higher than 11%, the discounted value of the return on investment would be lower than the cost of the project, making it unprofitable. Thus, the best choice is B.

Question 17

Investment spending is undertaken when the rate of return is:

Accepted Answer

The answer of Investment spending is undertaken when the rate...

Question 18

National savings is the sum of:

Accepted Answer

National savings is the sum of private savings and the budget balance, which is the difference between government revenue and spending.

Question 19

A liquid asset:

Accepted Answer

A liquid asset is an asset that can be easily converted to cash with little or no loss of value. This means that it can be sold quickly and easily on the market without losing its value. Examples include cash, money market accounts, and stocks. It is not necessarily easily convertible to a loan (choice A) and carries some level of financial risk (choice D). Financial markets work with a variety of assets, not just liquid assets (choice C).

Question 20

Businesses will undertake projects if the rate of return is:

Accepted Answer

The answer of Businesses will undertake projects if the rate...

Quiz 10: Savings, Investment Spending, and the Financial System