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Macroeconomics in Modules

Paul Krugman, Robin Wells

Chapter 6

Savings, Investment Spending, and the Financial System - all with Video Answers

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Chapter Questions

Problem 1

The difference between tax revenue and government spending is equal to
a. the budget balance.
b. national savings.
c. net exports.
d. the trade balance.
e. investment spending.

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Problem 1

Decreasing which of the following is a task of the financial system?
I. transaction costs
II. risk
III. liquidity
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III

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Problem 1

If the interest rate falls, then the present value of any given project _______ and total investment spending will __________.
a. rises : remain unchanged
b. rises : decrease
c. falls : decrease
d. falls : increase
e. rises : increase

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Problem 1

Suppose, for simplicity, that a bank uses a single interest rate for loans and deposits, there is no inflation, and all unspent money is deposited in the bank. The interest rate measures which of the following?
1. the cost of using a dollar today rather than a year from now
II. the benefit of delaying the use of a dollar from today until a year from now
III. the price of borrowing money calculated as a percentage of the amount borrowed
a. I only
b. II only
c. III only
d. I and II only
e. I, II, and III

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Problem 2

If government savings is positive, then
a. tax revenues exceed government spending.
b. net exports must be positive.
c. national savings must be greater than investmen spending.
d. there is a trade surplus.
e. the budget balance is negative.

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Problem 2

A financial asset that pays a fixed sum of interest each year and then repays the principal on a given date is called a
a. bond.
b. stock.
c. mutual fund.
d. loan.
e. loan-backed security.

Leslie Deeb
Leslie Deeb
Numerade Educator
01:05

Problem 2

If the interest rate is zero, then the present value of a dollar received at the end of the year is
a. more than $$\$ 1$$.
b. equal to $$\$ 1$$.
c. less than $$\$ 1$$.
d. zero.
e. infinite.

Carson Merrill
Carson Merrill
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Problem 2

The real interest rate equals the
a. nominal interest rate plus the inflation rate.
b. nominal interest rate minus the inflation rate.
c. nominal interest rate divided by the inflation rate.
d. nominal interest rate times the inflation rate.
e. federal funds rate.

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Problem 3

Which of the following will increase the demand for loanable funds?
a. a federal government budget surplus
b. an increase in perceived business opportunities
c. a decrease in the interest rate
d. positive capital inflows
e. decreased private saving rates

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Problem 3

If the interest rate is $10 \%$, the present value of $$\$ 1$$ paid to an individual or firm one year from now is
a. $$\$ 0$$.
b. $$\$ 0.89$$.
c. $$\$ 0.91$$.
d. $$\$ 1$$.
e. more than $$\$ 1$$.

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Problem 3

In an open economy
a. national savings is equal to investment spending.
b. national savings is equal to net capital inflow.
c. net capital inflow is equal to investment spending.
d. there is a budget deficit.
e. investment spending is equal to national savings plus net capital inflow.

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Problem 3

Which of the following assets is the most diversified?
a. stock in a company
b. a bond issued by a company
c. shares in a mutual fund
d. a loan to a company
e. a physical asset, such as a house

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Problem 4

Which of the following will increase the supply of loanable funds?
a. an increase in perceived business opportunities
b. decreased government borrowing
c. an increased private saving rate
d. an increase in the expected inflation rate
e. a decrease in capital inflows

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Problem 4

If the interest rate is $5 \%$, the amount received one year from now as a result of lending $$\$ 100$$ today is
a. $$\$ 90$$.
b. $$\$ 95$$.
c. $$\$ 100$$.
d. $$\$ 105$$.
e. $\$ 110$.

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05:07

Problem 4

If national savings is less than investment spending, then
a. net capital inflow is positive.
b. net capital inflow is negative.
c. there is a budget deficit.
d. there is a budget surplus.
e. there is a trade surplus.

Md.Daniyal Arshad
Md.Daniyal Arshad
Numerade Educator

Problem 4

A nonprofit institution collects the savings of its members and invests those funds in a wide variety of assets in order to provide its members with income after retirement. This describes a
a. mutual fund.
b. bank.
c. savings and loan.
d. pension fund.
e. life insurance company.

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Problem 5

Both lenders and borrowers base their decisions on
a. expected real interest rates.
b. expected nominal interest rates.
c. real interest rates.
d. nominal interest rates.
e. nominal interest rates minus real interest rates.

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01:04

Problem 5

The federal government is said to be "dissaving" when
a. there is a budget deficit.
b. there is a budget surplus.
c. there is no budget surplus or deficit.
d. savings does not equal investment spending.
e. national savings equals private savings.

Haricharan Gupta
Haricharan Gupta
Numerade Educator

Problem 5

What is the present value of $$\$ 100$$ realized two years from now if the interest rate is $10 \%$ ?
a. $$\$ 80$$
b. $$\$ 83$$
c. $$\$ 90$$
d. $$\$ 100$$
e. $$\$ 110$$

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05:11

Problem 5

A financial intermediary that provides liquid financial assets in the form of deposits to lenders and uses their funds to finance the illiquid investment spending needs of borrowers is called a
a. mutual fund.
b. bank.
c. corporation.
d. pension fund.
e. life insurance company.

Tommy Nguyen
Tommy Nguyen
Numerade Educator