Econ 20B- Additional Problem Set 4
I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer
1. Institutions in the economy that help to match one person's saving with another person's investment are
collectively called the
a. Federal Reserve system.
2. Which of the following is not correct?
a. When a country saves more, it has more capital.
b. A supplier of loanable funds borrows money.
c. The interest rate adjusts to balance the quantity supplied of and the quantity demanded of loanable
d. If Mary buys equipment for her factory, Mary is engaging in capital investment.
3. A bond is a
a. financirl ediary.
b. certificate of indebtedness.
c. certificate of partial ownership in an enterprise.
d. None of the above is correct.
4. The length of time until a bond matures is called the
5. A bond that never matures is known as a
b. an intermediary bond.
c. an indexed bond.
6. Stock represents
a. a claim to a share of the profits of a firm.
b. ownership in a firm.
d. All of the above are correct
7. Which of the following is not an important stock exchange in the United States?
a. New York Stock Exchange b. American Stock Exchange
c. Chicago Mercantile Exchange
8. Stock indexes are
a. the average of a group of stock prices.
b. the average of a group of stock yields.
c. reports in the newspaper that report on the price of the stock and earnings of the corporation.
d. measures of the risk relative to the profitability of corporations.
9. Which of the following are financial intermediaries?
a. both banks and mutual funds
b. banks but not mutual funds
c. mutual funds but not banks
d. neither banks or mutual funds
10. A mutual fund
a. is a financial market where small firms mutually agree to sell stocks and bonds to raise funds.
b. is funds set aside by local governments to lend to small firms who want to invest in projects that
are mutually beneficial to the firm and community.
c. sells stocks and bonds on behalf of small and less known firms who would otherwise have to pay
high interest to obtain credit.
d. is an institution that sells shares to the public and uses the proceeds to buy a selection of various
types of stocks, bonds, or both stocks and bonds.
11. Which of the following equations will always represent GDP in an open economy?
a. S = I - G
b. I = Y - C + G
c. Y = C + I + G
d. Y = C + I + G + NX
12. Which of the following equations represents national saving in a closed economy?
a. Y - I - G - NX
b. Y - C - G
c. Y - I - C
d. G + C - Y
13. In a closed economy, national saving equals
b. income minus the sum of consumption and government purchases.
c. private saving plus public saving.
d. All of the above are correct.
14. Suppose a closed economy had public saving of $3 trillion and private saving of $2 trillion. What is
national saving and investment in this country?
a. $5 trillion, $5 trillion
b. $5 trillion, $2 trillion
c. $1 trillion, $5 trillion
d. $1 trillion, $2 trillion ANS: A
15. In a closed economy, what does (T - G) represent?
16. In a closed economy, what does (Y - T - C) represent?
17. The country of Nemedia does not trade with any other country. Its GDP is $30 billion. Its government
purchases $5 billion worth of goods and services each year, collects $7 billion in taxes, and provides $3
billion in transfer payments to households. Private saving in Nemedia is $5 billion. What is consumption
and investment in Nemedia?
a. $18 billion and $5 billion
b. $21 billion and $4 billion
c. $13 billion and $7 billion
d. There is not enough information to answer the question.
18. The source of the supply of loanable funds
a. is saving and the source of demand for loanable funds is investment.
b. is investment and the source of demand for loanable funds is saving.
c. and the demand for loanable funds is saving.
d. and the demand for loanable funds is investment.
19. Other things the same, when the interest rate rises
a. people would want to lend more, making the supply of loanable funds increase.
b. people would want to lend less, making the supply of loanable funds decrease.
c. people would want to lend more, making the quantity of loanable funds supplied increase.
d. people would want to lend less, making the quantity of loanable funds supplied decrease.
20. If there is a surplus of loanable funds
a. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied
and the interest rate is above equilibrium.
b. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied
and the interest rate is below equilibrium.
c. the quantity of loanable funds supplied is greate