Question 1

Index funds

Accepted Answer

Index funds buy all the stocks in a given stock index, such as the S&P 500 or the Dow Jones Industrial Average. They are designed to track the performance of the index, not beat it. Therefore, options B and C are incorrect, and option D refers to sector funds, which are different from index funds.

Question 2

Index funds

Accepted Answer

Index funds typically have lower management fees because they are not actively managed, and they aim to match the performance of a specific market index, rather than outperforming it. This makes them a cost-effective option for investors. Additionally, studies have shown that over the long term, index funds tend to outperform actively managed funds, making them a better choice for investors looking for a higher rate of return.

Question 3

Which of the following statements about mutual funds is correct?

Accepted Answer

A) A mutual fund pools money from many investors and acts as a financial intermediary by investing that money in a portfolio of securities such as stocks, bonds, or other assets.
B) A mutual fund acquires its funds by selling shares to the public. The pool of money generated from the sale of these shares is used by the mutual fund to invest in a portfolio of securities.
C) When people buy shares from a mutual fund, they are investing in the fund's portfolio of securities; thus, they accept all of the risk and return associated with the fund's investments.

Question 4

Which of the following is not correct?

Accepted Answer

Purchases of capital goods are included in GDP as they are considered investment spending.

Question 5

If national saving in a closed economy is greater than zero,which of the following must be true?

Accepted Answer

National saving (S) = Private saving (Y-T-C) + Public saving (T-G) = Y - C - G > 0
Therefore, both private and public saving must be positive. Investment (I) = S, so investment is positive as well. Hence, all of the above statements are correct.

Question 6

In a closed economy,what remains after paying for consumption and government purchases is

Accepted Answer

In a closed economy, the formula for national saving is:

National Saving = Y - C - G

Where Y is the national income, C is consumption, and G is government purchases. Therefore, what remains after paying for consumption and government purchases is national saving.

Question 7

It is claimed that a secondary advantage of mutual funds is that

Accepted Answer

Mutual funds give ordinary people access to the skills of professional money managers, who can use their expertise to make investment decisions on behalf of the fund's investors. This is considered a secondary advantage of mutual funds in addition to the primary advantage of diversification.

Question 8

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Accepted Answer

Private saving is positive because there is positive investment, indicating that households and firms are saving in order to invest in new capital. However, the government deficit means that public saving is negative, since the government is spending more than it is collecting in taxes. Therefore, the overall saving in the economy is still positive, but it is entirely due to private saving.

Question 9

Which of the following statements is correct?

Accepted Answer

In a closed economy, the total available funds for investment come from national saving, which is the sum of private saving and public saving. Therefore, the sum of private saving and public saving must equal investment. Option A is incorrect because private saving only refers to the income that remains after consumption, not including government purchases. Option B is incorrect because public saving is the difference between government revenue and spending, not the sum of private saving and national saving. Option D is incorrect because taxes are not directly related to GDP, which measures the total output in the economy.

Question 10

Which advantage(s)do mutual funds claim to provide?

Accepted Answer

Mutual funds claim to provide the advantage of diversification as they pool money from multiple investors and invest in a variety of assets, reducing the risk of a single investment. They also provide access to the skills of professional money managers who analyze and invest in stocks, bonds, and other assets. Hence, option A is the correct answer.

Question 11

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

Accepted Answer

In a closed economy, national saving is equal to investment, and private saving is equal to national saving minus government saving. If the government's tax revenue is equal to its expenditures, then government saving is zero, and thus national saving and private saving must be equal.

Question 12

Net exports must equal zero for any economy

Accepted Answer

The answer of Net exports must equal zero for any...

Question 13

The assumption of a closed economy

Accepted Answer

The answer of The assumption of a closed economy
...

Question 14

In a closed economy,what does (Y - T - C)represent?

Accepted Answer

The answer of In a closed economy,what does (Y -...

Question 15

As a money management fee,mutual funds usually charge their customers

Accepted Answer

Mutual funds typically charge customers between 0.5 and 2.0 percent of assets each year as a money management fee. This fee is known as the expense ratio and covers the costs of running the fund, including paying the fund manager(s), administrative expenses, and marketing expenses. This fee is deducted from the fund's assets and reduces the overall return for investors. While some funds may charge higher fees, those in the range of 0.5 to 2.0 percent are most common.

Question 16

In a closed economy,what does (T - G)represent?

Accepted Answer

(T - G) represents the government’s budget surplus, also known as public saving. When government spending is less than tax revenue, there is a surplus, which represents public saving.

Question 17

In national income accounting,we use which of the following pairs of terms interchangeably?

Accepted Answer

The answer of In national income accounting,we use which of...

Question 18

Which of the following is correct?

Accepted Answer

The financial system, including banks, stock markets, and other institutions, channels funds from savers to borrowers by facilitating the transfer of money from those who have excess funds (savers) to those who need funds (borrowers). A and B are incorrect because investment and private saving are not the same thing in national income accounting, and national saving can be greater than zero even if some individuals or sectors are not saving. D is incorrect because savers are people who set aside some portion of their income for future use, while people who consume more than they earn are not saving.

Question 19

Managed funds

Accepted Answer

Managed funds are actively managed by professionals, which typically results in higher costs. However, studies have shown that the majority of actively managed funds underperform their respective benchmarks, such as index funds. This means that managed funds often have a lower rate of return than index funds. Therefore, while managed funds may offer the potential for higher returns, they also come with higher costs and higher risks.

Question 20

A closed economy does not

Accepted Answer

The answer of A closed economy does not
...

Quiz 26: Saving, investment, and the Financial System

Index funds

Index funds

Which of the following statements about mutual funds is correct?

Which of the following is not correct?

If national saving in a closed economy is greater than zero,which of the following must be true?

In a closed economy,what remains after paying for consumption and government purchases is

It is claimed that a secondary advantage of mutual funds is that

You observe a closed economy that has a government deficit and positive investment.Which of the following is correct?

Which of the following statements is correct?

Which advantage(s) do mutual funds claim to provide?

In which of the following cases would it necessarily be true that national saving and private saving are equal for a closed economy?

Net exports must equal zero for any economy

The assumption of a closed economy

In a closed economy,what does (Y - T - C) represent?

As a money management fee,mutual funds usually charge their customers

In a closed economy,what does (T - G) represent?

In national income accounting,we use which of the following pairs of terms interchangeably?

Which of the following is correct?

Managed funds

A closed economy does not