Question 1

Private saving refers to ________.
A) after-tax income minus consumption expenditures
B) a flow variable which adds to the stock of wealth
C) the private saving rate times disposable income
D) all of the above
E) none of the above

Accepted Answer

Private saving refers to after-tax income minus consumption expenditures which is a flow variable that adds to the stock of wealth. The private saving rate is calculated as private saving divided by disposable income. Therefore, all options (A), (B), and (C) are correct, making (D) the best choice.

Question 2

How can the U.S. federal government induce increases in the national saving rate?
A) implementing a value added tax
B) lowering the capital gains tax
C) reducing budget deficits
D) all of the above
E) none of the above

Accepted Answer

All the options listed can potentially increase the national saving rate. Implementing a value-added tax can reduce consumption and increase savings. Lowering the capital gains tax can encourage investment and savings. Reducing budget deficits can increase national savings by reducing the amount the government borrows, leaving more savings available for investment.

Question 3

If a U.S. citizen deposits $10,000 in a foreign bank, and the bank uses the $10,000 to buy assets in the U.S., then ________.
A) the U.S. has experienced a net capital outflow
B) the U.S. has experienced an increase in net exports
C) the foreign economy has experienced a net capital outflow
D) the foreign economy has experienced an increase in net exports
E) none of the above

Accepted Answer

E

Question 4

Increases in ________ typically lead to decreases in private saving.
A) the interest rate
B) disposable income
C) autonomous consumption
D) all of the above
E) none of the above

Accepted Answer

The answer of Increases in ________ typically lead to decreases...

Question 5

Private saving refers to ________.
A) disposable income minus consumption expenditure
B) total expenditure minus purchases of capital goods
C) taxes plus consumption minus income
D) consumption expenditure divided by disposable income
E) none of the above

Accepted Answer

Private saving refers to the portion of disposable income that is not spent on consumption. Therefore, it is calculated as disposable income minus consumption expenditure.

Question 6

Which of the four government policies to stimulate saving is essential? That is, which policy can on its own, regardless of the other policies, determine the level of the national saving rate?

Accepted Answer

The answer of Which of the four government policies to...

Question 7

Government saving refers to ________.
A) tax revenues minus transfers minus government consumption minus government investment
B) the government's tax receipts minus its outlays
C) national saving minus private saving
D) all of the above
E) none of the above

Accepted Answer

The answer of Government saving refers to ________.
A) tax revenues...

Question 8

Which of the following is a correct statement?
A) Wealth can increase even if there is no saving
B) An increase in net foreign assets always increases wealth
C) Low U.S. national saving is the principal cause of the trade deficits the U.S. has run since the 1980s
D) The U.S will be a net debtor nation for the foreseeable future.
E) all of the above

Accepted Answer

All statements are correct. Wealth can increase without saving through asset appreciation. An increase in net foreign assets does increase a nation's wealth. Low U.S. national saving has been a significant factor in the trade deficits since the 1980s. Given current trends, it is likely the U.S. will remain a net debtor nation for the foreseeable future.

Question 9

When a U.S. firm sells a good abroad for, say, 100 euros (assume $1.5=1euro) , U.S. net exports increase by $150. These $150 in exports can be accounted for as $150 increase in capital outflow because ________.
A) private consumption in the foreign country increases by $150
B) If the U.S. firm uses the 100 euros to buy a share of stock in a foreign firm, the firm is supplying U.S. capital to that foreign firm
C) If the U.S. firm uses the proceeds to buy a U.S. bond, capital investment in the foreign country has increased.
D) all of the above
E) none of the above

Accepted Answer

Option B is the correct choice because when a U.S. firm uses the proceeds from selling a good abroad to buy a share of stock in a foreign firm, it is supplying U.S. capital to that foreign firm. This increases capital outflow from the U.S. and hence, increases U.S. net exports by the same magnitude. Option A is incorrect because an increase in private consumption in the foreign country does not necessarily mean an increase in capital outflow from the U.S. Option C is incorrect because if the U.S. firm uses the proceeds to buy a U.S. bond, it does not increase capital investment in the foreign country.

Question 10

A foreign bank receives a deposit of $10,000 from a U.S. citizen. As a result, there is a net capital outflow from the U.S., if ________.
A) the bank buys a U.S.-made computer
B) the bank buys a bond issued by a U.S. company
C) the bank keeps the $10,000 in a vault
D) all of the above
E) none of the above

Accepted Answer

The answer of A foreign bank receives a deposit of...

Question 11

Why is it important, for an open economy, that investment not be consistently higher than saving?

Accepted Answer

The answer of Why is it important, for an open...

Question 12

Government saving refers to ________.
A) tax revenues minus transfers minus government purchases
B) tax revenues plus transfers minus government consumption
C) the saving rate times transfers
D) national plus private saving
E) none of the above

Accepted Answer

Government saving is defined as tax revenues minus transfers minus government purchases. This calculation reflects the portion of government income that is not spent on either transfers (such as social security payments) or direct purchases of goods and services.

Question 13

Net capital outflows ________.
A) are also known as net foreign investment
B) are positive if saving is greater than investment
C) are also known as the trade balance
D) all of the above
E) none of the above

Accepted Answer

The answer of Net capital outflows ________.
A) are also known...

Question 14

In the model for desired saving, autonomous is roughly synonymous with ________.
A) policy-determined
B) endogenous
C) intended
D) inflation-adjusted
E) exogenous

Accepted Answer

In economics, the term "autonomous" refers to factors that are outside of the control of an economic model or the agents within it. The level of desired saving is largely determined by exogenous factors such as income, demographics, and cultural norms, which are not influenced by policy decisions or individual intentions. Therefore, the best choice is E, exogenous.

Question 15

Increases in ________ typically lead to decreases in consumption
A) the interest rate
B) disposable income
C) autonomous consumption
D) all of the above
E) none of the above

Accepted Answer

Increases in the interest rate typically lead to decreases in consumption because higher interest rates make saving more attractive than spending and borrowing more expensive, thus reducing consumers' willingness or ability to consume.

Question 16

When a U.S. firm sells a good abroad for, say, 100 euros (assume $1=1euro) , U.S. net exports increase by $100. These $100 in exports can be accounted for as $100 increase in capital outflow because ________.
A) If the 100 euros are kept in the foreign bank, the U.S. firm is giving a loan to that bank
B) If the U.S. firm uses the 100 euros to buy a share of stock in a foreign firm, the firm is supplying U.S. capital to that foreign firm
C) If the U.S. firm uses the proceeds to build a new factory in that country, it is supplying U.S. capital to that country
D) all of the above
E) none of the above

Accepted Answer

All options describe scenarios where the U.S. firm is using the proceeds from exports to invest abroad, which constitutes capital outflow.

Question 17

How can the U.S. federal government induce increases in the national saving rate?
A) by lowering the sales tax
B) by levying taxes on individual retirement (IRA) accounts
C) by reducing budget deficits
D) all of the above
E) none of the above

Accepted Answer

Reducing budget deficits can lead to increases in national saving by decreasing the demand for loanable funds, which decreases interest rates and encourages more saving. Lowering the sales tax and levying taxes on individual retirement accounts may have the opposite effect and discourage saving.

Question 18

Consumption expenditures are a function of ________.
A) the real interest rate
B) disposable income
C) autonomous consumption
D) all of the above
E) none of the above

Accepted Answer

Consumption expenditures are influenced by various factors including the real interest rate, which affects the cost of borrowing and saving; disposable income, which is the income available to households after taxes and transfers; and autonomous consumption, which is the consumption that occurs even when income is zero. Therefore, all of the options listed are correct.

Question 19

The real interest rate ________.
A) is the cost of borrowing not adjusted for inflation
B) keeps the market for saving and consumption in equilibrium
C) describes the real benefit of saving
D) all of the above
E) none of the above

Accepted Answer

The answer of The real interest rate ________.
A) is the...

Question 20

The real interest rate ________.
A) is the cost of borrowing adjusted for inflation
B) keeps the market for saving and investment in equilibrium
C) describes the real benefit of saving
D) all of the above
E) none of the above

Accepted Answer

The real interest rate is the cost of borrowing adjusted for inflation, which keeps the market for saving and investment in equilibrium, and also describes the real benefit of saving. Therefore, all of the above options are correct.

Quiz 4: Saving and Investment in Closed and Open Economies

Private saving refers to ________.

How can the U.S. federal government induce increases in the national saving rate?

If a U.S. citizen deposits $10,000 in a foreign bank, and the bank uses the $10,000 to buy assets in the U.S., then ________.

Increases in ________ typically lead to decreases in private saving.

Private saving refers to ________.

Which of the four government policies to stimulate saving is essential? That is, which policy can on its own, regardless of the other policies, determine the level of the national saving rate?

Government saving refers to ________.

Which of the following is a correct statement?

When a U.S. firm sells a good abroad for, say, 100 euros (assume $1.5=1euro) , U.S. net exports increase by $150. These $150 in exports can be accounted for as $150 increase in capital outflow because ________.

A foreign bank receives a deposit of $10,000 from a U.S. citizen. As a result, there is a net capital outflow from the U.S., if ________.

Why is it important, for an open economy, that investment not be consistently higher than saving?

Government saving refers to ________.

Net capital outflows ________.

In the model for desired saving, autonomous is roughly synonymous with ________.

Increases in ________ typically lead to decreases in consumption

When a U.S. firm sells a good abroad for, say, 100 euros (assume $1=1euro) , U.S. net exports increase by $100. These $100 in exports can be accounted for as $100 increase in capital outflow because ________.

How can the U.S. federal government induce increases in the national saving rate?

Consumption expenditures are a function of ________.

The real interest rate ________.

The real interest rate ________.