ECON CH. 10, Macroeconomics exam 2 – Flashcards
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If a country has a trade surplus, we can conclude that it also has:
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a net capital outflow.
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(Table: National Income Accounts) Look at the table National Income Accounts. The value of national savings is:
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1.6
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(Table: Loanable Funds) Look at the table Loanable Funds. At what interest rate will the market for loanable funds be in equilibrium?
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5%
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The demand curve for loanable funds slopes:
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downward, because demand is lower when the price to borrow money is higher.
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If the government increases its borrowing, then at every interest rate there is a(n):
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additional demand for funds.
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(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.
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smaller
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(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:
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2,000
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A business will be likely to borrow to fund projects if:
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the rate of return on the project is at least as high as the interest rate on the loan.
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The Fisher effect states that:
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the expected real rate of interest is unaffected by the change in expected inflation.
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An amount that would equal a particular future value if deposited today at the prevailing interest rate is the:
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present value.
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The present value of a $110 payment in one year, given an annual 10% interest rate, is:
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100
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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.
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liability; financial asset
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An important advantage of bonds as a financial asset is that they:
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are standardized and therefore are easier to sell than loans.
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One reason financial institutions become very large is to:
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decrease transaction costs.
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savings and investment spending
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savings and investment spending are always equal for the economy as a whole.
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closed economy
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no exports or imports
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budget surplus
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the difference between tax revenue and government spending when government spending exceeds tax revenue.
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budget balance
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the difference between tax revenue and government spending.
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national savings
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the sum of private savings and the budget balance is the total amount of savings generated within the economy.
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GDP (closed economy)
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C+I+G
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net capital inflow
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the total inflow of funds into a country minus the total outflow of funds out of a country.
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net capital inflow equation
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NCI=IM-X
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loanable funds market
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a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders.
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economy as a whole
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savings=investment spending
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open economy
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savings=national savings plus capital inflow
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equillibrium interest rate
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the interest rate at which the quantity of loanable funds demanded is
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crowding out
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occurs when a government budget deficit drives up the interest rate and leads to reduced investment spending.
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real interest rate
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nominal interest rate-inflation rate
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fisher effect
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an increase in expected future between inflation and real and nominal interest rates.
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loan
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a lending agreement between an individual lender and individual borrower.
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private savings
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household income minus taxes
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financial assets with the most liquid
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bank deposits.
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present value
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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.
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