Question 1

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 the scenarios described in options A, B, and C involve the U.S. firm using the proceeds from the sale of goods abroad in ways that represent an outflow of capital from the U.S. to another country, thereby justifying the statement.

Question 2

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 real interest rate describes the real benefit of saving as it is the nominal interest rate adjusted for inflation, reflecting the true increase in purchasing power.

Question 3

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 4

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 5

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 represents the cost of borrowing adjusted for inflation, and it keeps the market for saving and investment in equilibrium. Additionally, it also describes the real benefit of saving. Therefore, all three statements are correct, making option D the correct answer.

Question 6

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 minus...

Question 7

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 8

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 9

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

Increases in autonomous consumption typically lead to decreases in private saving because more consumption reduces the amount of income available to save.

Question 10

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 is the difference between after-tax income and consumption expenditure, which is a flow variable that adds to the stock of wealth. The private saving rate is the ratio of private savings to disposable income. Therefore, all the given options are correct.

Question 11

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 consumed and hence is calculated as disposable income minus consumption expenditure.

Question 12

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 13

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

When the U.S. firm uses the 100 euros to buy a share of stock in a foreign firm, it is a form of capital outflow as the firm is supplying U.S. capital to that foreign firm. The other options (A and C) do not relate to capital outflow. Therefore, the correct answer is B.

Question 14

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 15

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

Autonomous refers to factors that are outside of an individual or firm's control, and are therefore exogenous. Choices A, B, C, and D all suggest some level of control or intentionality on the part of the individual, which is not necessarily the case with autonomous factors.

Question 16

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 17

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

The transaction results in no net capital outflow or increase in net exports for either economy, as the money is simply being cycled back into the U.S. economy.

Question 18

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

Net capital outflows are also known as net foreign investment, and they are positive if saving is greater than investment. They are not the same as the trade balance, which measures the difference between exports and imports.

Question 19

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 an increase in national saving rate as there would be less government borrowing, which increases the supply of loanable funds and lowers interest rates. This, in turn, incentivizes households and firms to save more as they earn a higher return on their savings. Lowering the sales tax or levying taxes on IRAs would have the opposite effect, reducing households' disposable income and lowering incentives to save.

Question 20

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 economy,that...

Quiz 4: Saving and Investment in Closed and Open Economies

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 ________.

The real interest rate ________.

Government saving refers to ________.

Which of the following is a correct statement?

The real interest rate ________.

Government 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?

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 ________.

Increases in ________ typically lead to decreases in private saving.

Private saving refers to ________.

Private saving refers to ________.

Consumption expenditures are a function of ________.

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 ________.

Increases in ________ typically lead to decreases in consumption

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

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 ________.

Net capital outflows ________.

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

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