Macroeconomics

False

Most entrepreneurs finance their purchases of real capital using their past savings

False

Generally, if people begin to expect a company to have higher future profits, the price of the company’s stock will begin to decrease

True

Mutual funds are a type of financial intermediary.

False 

Managed mutual funds perform better on average than index funds because stock prices are usually a good predictor of a company’s true value.

True

Index funds are financial intermediaries, but municipal bonds are not

False 

Because of the differences in tax treatment, municipal bonds pay a higher interest rate than do corporate bonds.

True 

Credit risk refers to the probability that the issuer of a bond will fail to pay some or all of the interest or principal

False

If Y is GDP, T is taxes, and C is consumption, then national saving is equal to Y - T - C.

True

If Y is GDP, T is taxes, C is consumption, and G is government purchases, then public saving is T - G, while private saving is Y - T - C

False 

If, for an imaginary closed economy, investment amounts to $12,000 and the government is running a $2,000 deficit, then private savings must amount to $10,000.

True

Suppose a small, closed economy has GDP of $5 billion, consumption of $3 billion, and government expenditures of $1 billion. Then investment and national savings are both $1 billion.

False 

Joan uses some of her income to buy mutual fund shares. A macroeconomist refers to Joan's purchase as investment

Alberta buys a paint sprayer and a lift for her car customizing shop. A macroeconomist would refer to these purchases as investment

True

False

The demand for loanable funds comes from saving and the supply of loanable funds comes from investment.

True 

If Congress instituted an investment tax credit, the demand for loanable funds would shift rightward.

False 

The term crowding out refers to decreases in the interest rate caused by government budget surpluses

True

An increase in the demand for loanable funds increases the equilibrium interest rate and increases the equilibrium level of saving.

True

When an economy’s government goes from running a budget deficit to running a budget surplus, the economy’s long-run growth prospects are improved.

To start a business delivering documents, you need to purchase cell phones, bicycles, and desks.

These purchases are called investment. Raising the funds to purchase them makes you a borrower

If the Apple corporation sells a bond, it is

borrowing directly from the public

Cole, a financial advisor, has told his clients the following things. Which of his statements is not correct?

"U.S. government bonds generally pay a higher rate of interest than corporate bonds."

Which of the following bonds has the highest interest rate?

A long term and a high credit risk

What do economists call financial institutions through which savers can indirectly provide funds to borrowers?

Financial intermediaries

Which of the following statements is correct?

For a closed economy, the sum of private saving and public saving must equal investment.

Suppose private saving in a closed economy is $12 billion and investment is $8 billion.

The government budget deficit must equal $4 billion.

For a closed economy, GDP is $29 trillion, consumption is $9 trillion, taxes are $2 trillion and the government runs a surplus of $4 trillion. What are private savings and national savings?

$18.0 trillion and $22.0 trillion, respectively

In a closed economy, public saving is the amount of

tax revenue that the government has left after paying for its spending.

An increase in the government's budget surplus means public saving is 

Positive and increasing

National saving is 

the total income in the economy that remains after paying for consumption and government purchases.

 Katherine is considering expanding her jewelry shop. If interest rates fall, she is

more likely to expand. This illustrates why the demand for loanable funds slopes downward

The slope of the supply-of-loanable-funds curve represents the

positive relation between the interest rate and saving.

If the supply-of-loanable-funds curve shifts to the right, then the equilibrium interest rate

falls and the quantity of loanable funds rises.

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then the 

demand-for-loanable-funds curve would shift rightward, initially creating a shortage of loanable funds at the original interest rate.

A budget deficit

changes the supply of loanable funds. 

Suppose the government changed the tax laws, with the result that people were encouraged to consume more and save less. Using the model of the loanable-funds market, a consequence would be 

higher interest rates and lower investment.