Question 1

For an open economy,the equation Y = C + I + G + NX is an identity.If we define national saving,S,as the total income in the economy that is left after paying for consumption and government purchases,then for an open economy,it is true that

Accepted Answer

In an open economy, national saving (S) equals investment (I) plus net exports (NX), since national saving is the total income in the economy that is not spent on consumption (C) or government purchases (G). This can be rearranged as S - I = -NX, which means that a positive saving-investment gap (S-I > 0) implies a current account surplus (NX > 0). Thus, for an open economy, option D is correct.

Question 2

If an economy is closed and if it has no government,then

Accepted Answer

In a closed economy with no government, there are only two actors: households and firms. Therefore, national saving (which is equal to private saving in this case) is the amount of income that households do not consume but instead save. Public saving is not applicable since there is no government, and gross domestic product (GDP) is equal to consumption plus investment plus government spending plus net exports, but since there is no government or net exports, GDP is simply equal to consumption plus investment.

Question 3

An increase in the government's budget deficit means

Accepted Answer

An increase in the government's budget deficit means that the government is spending more than it is collecting in revenue, which leads to a decrease in public saving. Therefore, public saving is less than $0 and decreasing.

Question 4

In the language of macroeconomics,investment refers to

Accepted Answer

In the language of macroeconomics, investment refers to the purchase of new capital goods, such as machinery, equipment, tools, and buildings, that are used to produce goods and services in the future. Thus, saving and investing are not the same things: saving refers to the portion of income that is not spent on consumption, whereas investing refers to the allocation of saved income to productive uses. Buying stocks, bonds, or mutual funds is a form of financial investment, but it is not considered investment in the sense used by macroeconomists, because it does not create new physical capital.

Question 5

Ethan purchases a new house for $170,000.Ethan's purchase of the house contributes $170,000 to which magnitude in the identity Y = C + I + G?

Accepted Answer

In the identity Y = C + I + G, I represents investment expenditure by firms. Ethan's purchase of the house can be considered as investment expenditure by him, hence it contributes to the magnitude of I in the identity.

Question 6

Melinda buys new equipment for her dental office with funds she borrowed from a bank that raised funds from depositors.Which of the following is correct?

Accepted Answer

The answer of Melinda buys new equipment for her dental...

Question 7

Scenario 26-2.Assume the following information for an imaginary,closed economy.
GDP = $5 trillion;consumption = $3.1 trillion;
government purchases = $0.7 trillion;and taxes = $0.9 trillion.
-Refer to Scenario 26-2.For this economy,public saving is equal to

Accepted Answer

Public saving = Taxes - Government purchases = $0.9 trillion - $0.7 trillion = $0.2 trillion. Since taxes are greater than government purchases, the government is running a budget surplus of $0.2 trillion.

Question 8

Fran buys 1,000 shares of stock issued by Miller Brewing.In turn,Miller uses the funds to buy new machinery for one of its breweries.

Accepted Answer

Fran is saving by purchasing shares, which is a form of saving through investment in financial assets. Miller is investing by using the funds to buy new machinery, which is a capital investment in physical assets.

Question 9

A budget surplus

Accepted Answer

A budget surplus occurs when government revenue from taxes and other sources exceeds government spending. This results in extra funds that can be used to pay off government debt or saved for future expenditures. Therefore, a budget surplus reduces the government's debt.

Question 10

Scenario 26-2.Assume the following information for an imaginary,closed economy.
GDP = $5 trillion;consumption = $3.1 trillion;
government purchases = $0.7 trillion;and taxes = $0.9 trillion.
-Refer to Scenario 26-2.For this economy,investment amounts to

Accepted Answer

Investment in a closed economy is calculated as GDP minus consumption minus government purchases. So, $5 trillion - $3.1 trillion - $0.7 trillion = $1.2 trillion.

Question 11

When the government's budget deficit increases

Accepted Answer

When the government's budget deficit increases, it means the government is spending more than it is receiving in revenue. To meet its spending needs, the government will have to borrow more money from public savings or from other sources. This means that the government is borrowing more and public savings will fall.

Question 12

When the government has a budget surplus

Accepted Answer

A budget surplus occurs when the government collects more in tax revenue than it spends, allowing it to buy back its bonds from the public.

Question 13

Larry buys stock in A to Z Express Company.Curly Corporation builds a new factory.Whose transaction would be an act of investment in the language of macroeconomics?

Accepted Answer

In macroeconomics, investment refers to the purchase of capital goods such as factories, equipment, and technology that will be used to produce goods and services in the future. Larry's purchase of stock in A to Z Express Company is not an investment in this sense since he is not providing funds directly to the company to purchase capital goods. On the other hand, Curly Corporation's building of a new factory is an investment as it involves the creation of new capital goods that will be used in production. Therefore, the correct answer is B, only Curly Corporation's transaction would be an act of investment in the language of macroeconomics.

Question 14

Which of the following would a macroeconomist consider as investment?

Accepted Answer

A macroeconomist would consider building a new coffee shop as investment, as it involves creating a new capital asset that can generate future income. Purchasing a bond or stock, on the other hand, would be considered financial investment and not included in macroeconomic investment.

Question 15

Which of the following would be included as investment in the GDP accounts?

Accepted Answer

Investment in the GDP accounts refers to additions to a country's capital stock. This includes investments in machinery, equipment, and other physical assets used to produce goods and services. Option A refers to government expenditures on imported goods, which are not included in GDP. Option B relates to the purchase of existing stocks, which does not involve the creation of new capital goods. Option C relates to the formation of new capital goods, which is included in GDP as investment.

Question 16

For an economy that engages in international trade,GDP is divided into four components.Which of the following items is not one of those components?

Accepted Answer

The four components of GDP for an economy that engages in international trade are consumption, government purchases, net exports, and investment. National saving is not a component of GDP, but rather a source of funding for investment.

Question 17

An increase in the government's budget surplus means

Accepted Answer

An increase in the government's budget surplus means that the government is collecting more in revenue than it is spending. This results in an increase in public saving, which is the amount of income that households and businesses save after paying taxes and consuming goods and services. Therefore, the correct choice is A, which indicates that public saving is greater than $0 and increasing.

Question 18

Mandy purchases 68.2 shares of a mutual fund for $1,500.Cassie's purchase of these shares contributes $1,500 to which magnitude in the identity Y = C + I + G?

Accepted Answer

The answer of Mandy purchases 68.2 shares of a mutual...

Question 19

If the tax revenue of the federal government is less than its spending,then the federal government necessarily

Accepted Answer

When tax revenue of the federal government is less than its spending, it means that the federal government is spending more money than it is taking in through taxes. This creates a budget deficit.  Running a budget surplus would mean that the government is taking in more money than it is spending. Running a national debt refers to the overall accumulation of past budget deficits, which can happen when spending exceeds revenue over a long period of time. Increasing taxes could be one way to address a budget deficit, but it is not necessarily the only option.

Question 20

Jim buys a $1000 bond from ABC Company.ABC Company uses the $1000 to purchase a new piece of machinery.Whose spending would be an act of investment in the language of macroeconomics?

Accepted Answer

In macroeconomics, investment refers to the purchase of physical capital goods such as machinery, equipment, and buildings. In this scenario, ABC Corporation's purchase of the new piece of machinery is an act of investment since it involves the acquisition of a physical capital good that can be used to produce goods and services in the future. Jim's purchase of the bond does not meet the criteria for an act of investment in macroeconomics since it does not involve the acquisition of a physical capital asset.

Quiz 13: Saving Investment and the Financial System: Saving and Investment in the National Income Accounts