Chapter 13: Savings and Investment

Chapter 13: Savings and Investment

12. Municipal bonds pay a relatively

a. / low rate of interest because of their high default risk and because the interest they pay is subject to federal income tax.
b. / low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.
c. / high rate of interest because of their high default risk and because federal taxes must be paid on the interest they pay.
d. / high rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

18. According to the definitions of national saving and public saving, if Y, C, and G remained the same, an increase in taxes would

a. / raise national saving and decrease public saving.
b. / raise national saving and raise public saving.
c. / leave national saving and public saving unchanged.
d. / leave national saving unchanged and raise public saving.

____ 19. Suppose that in a closed economy GDP is equal to 11,000, taxes are equal to 2,500, consumption equals 7,000, and government purchases equal 3,000. What are private saving and public saving?

a. / 1,500 and -500, respectively
b. / 1,500 and 500, respectively
c. / 1,000 and -500, respectively
d. / 1,000 and 500, respectively

____ 21. For an imaginary closed economy, T = $5,000; S = $11,000; C = $50,000; and the government is running a budget deficit of $1,000. Then

a. / private saving = $10,000 and GDP = $54,000.
b. / private saving = $10,000 and GDP = $58,000.
c. / private saving = $12,000 and GDP = $67,000.
d. / private saving = $12,000 and GDP = $72,000.

____ 26. If there is a shortage of loanable funds, then

a. / the quantity demanded is greater than the quantity supplied and the interest rate will rise.
b. / the quantity demanded is greater than the quantity supplied and the interest rate will fall.
c. / the quantity supplied is greater than the quantity demanded and the interest rate will rise.
d. / the quantity supplied is greater than the quantity demanded and the interest rate will fall.

____ 29. Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds?

a. / The interest rate and investment would fall.
b. / The interest rate and investment would rise.
c. / The interest rate would rise and investment would fall.
d. / None of the above is necessarily correct.

____ 30. If Canada increases its budget deficit, it will reduce

a. / private saving and so shift the supply of loanable funds left.
b. / investment and so shift the demand for loanable funds left.
c. / public saving and so shift the supply of loanable funds left.
d. / None of the above is correct.