ECON CH. 10, Macroeconomics exam 2 – Flashcards
Unlock all answers in this set
Unlock answersquestion
Investment spending in macroeconomics refers to:
answer
adding to physical capital.
question
National savings is the sum of private savings and:
answer
the budget balance.
question
One difference between a closed and an open economy is that:
answer
in the latter, foreign savings complement domestic savings in financing investment spending.
question
(Table: Investment Spending, Private Spending, and Capital Inflows) Look at the table Investment Spending, Private Spending, and Capital Inflows. What is the budget balance as a percentage of GDP in Northlandia?
answer
10%
question
If a country has a trade surplus, we can conclude that it also has:
answer
a net capital outflow.
question
(Table: National Income Accounts) Look at the table National Income Accounts. The value of national savings is:
answer
1.6
question
(Table: Loanable Funds) Look at the table Loanable Funds. At what interest rate will the market for loanable funds be in equilibrium?
answer
5%
question
The demand curve for loanable funds slopes:
answer
downward, because demand is lower when the price to borrow money is higher.
question
If the government increases its borrowing, then at every interest rate there is a(n):
answer
additional demand for funds.
question
(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. Other things being equal, if there is an increase in the interest rate above 8%, _____ quantity of loanable funds will be demanded.
answer
smaller
question
(Table: Investment Projects) Look at the table Investment Projects. If the market interest rate declines from 15% to 13%, then the amount of investment demanded will increase by:
answer
2,000
question
A business will be likely to borrow to fund projects if:
answer
the rate of return on the project is at least as high as the interest rate on the loan.
question
The Fisher effect states that:
answer
the expected real rate of interest is unaffected by the change in expected inflation.
question
An amount that would equal a particular future value if deposited today at the prevailing interest rate is the:
answer
present value.
question
The present value of a $110 payment in one year, given an annual 10% interest rate, is:
answer
100
question
Suppose that Jim just got a $20,000 loan from his credit union to buy a new car. The loan is a _____ for Jim and a _____ for the credit union.
answer
liability; financial asset
question
An important advantage of bonds as a financial asset is that they:
answer
are standardized and therefore are easier to sell than loans.
question
One reason financial institutions become very large is to:
answer
decrease transaction costs.
question
savings and investment spending
answer
savings and investment spending are always equal for the economy as a whole.
question
closed economy
answer
no exports or imports
question
budget surplus
answer
the difference between tax revenue and government spending when government spending exceeds tax revenue.
question
budget balance
answer
the difference between tax revenue and government spending.
question
national savings
answer
the sum of private savings and the budget balance is the total amount of savings generated within the economy.
question
GDP (closed economy)
answer
C+I+G
question
net capital inflow
answer
the total inflow of funds into a country minus the total outflow of funds out of a country.
question
net capital inflow equation
answer
NCI=IM-X
question
loanable funds market
answer
a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders.
question
economy as a whole
answer
savings=investment spending
question
open economy
answer
savings=national savings plus capital inflow
question
equillibrium interest rate
answer
the interest rate at which the quantity of loanable funds demanded is
question
crowding out
answer
occurs when a government budget deficit drives up the interest rate and leads to reduced investment spending.
question
real interest rate
answer
nominal interest rate-inflation rate
question
fisher effect
answer
an increase in expected future between inflation and real and nominal interest rates.
question
loan
answer
a lending agreement between an individual lender and individual borrower.
question
private savings
answer
household income minus taxes
question
financial assets with the most liquid
answer
bank deposits.
question
present value
answer
the value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest.
