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Exam 8: Saving, Investment, and the Financial System

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Question 81

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Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401k) and 403b) tax- deferred retirement accounts?

A) the interest rate and quantity of loanable funds would increase
B) the interest rate and quantity of loanable funds would decrease.
C) the interest rate would increase and the quantity of loanable funds would decrease.
D) the interest rate would decrease and the quantity of loanable funds would increase.

E) C) and D)
F) None of the above

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Question 82

Multiple Choice

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Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds?

A) The demand for loanable funds would shift left.
B) The supply of loanable funds would shift left.
C) The demand for loanable funds would shift right.
D) The supply of loanable funds would shift right.

E) C) and D)
F) B) and C)

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Question 83

Multiple Choice

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Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit. What would happen to the interest rate?

In a closed economy, national saving equals

Scenario 26-1. Assume the following information for an imaginary, closed economy. GDP = $100,000; taxes = $22,000; government purchases = $25,000; national saving = $15,000. -Refer to Scenario 26-1. For this economy, investment amounts to

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

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. For which stocks) isare) the P/E ratio less than what is historically typical?

Which of the following restrictions implies that investment exceeds private saving for a closed economy?

When the government increases its borrowing, the budget _____ increases and government debt _____. The resulting change in investment due to this increased government borrowing is called _____.

When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This results in an) _____ in the interest rate and an) _____ in investment.

A government may use deficit financing to smooth tax rates over time.

Use the following table to answer the following questions. Table 26-2 -Refer to Table 26-2. Which company had the lowest earnings per share?

What is the source of the supply of loanable funds?

Which government policy raises the interest rate and raises investment spending?

A is a certificate of indebtedness and a is a claim to partial ownership in a firm.

Scenario 26-3. Assume the following information for an imaginary, open economy. Consumption = $1,000; investment = $200; net exports = -$50; taxes = $230; private saving = $225; and national saving = $150. -Refer to Scenario 26-3. For this economy, GDP equals

Figure 26-5. Figure 26-5 shows the loanable funds market for a closed economy. -Refer to Figure 26-5. Starting at point A, a reduction in government spending would cause

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?

What variable adjusts to balance demand and supply in the market for loanable funds?