Question 1

Which of the following best describes the role of the financial system in an economy?

Accepted Answer

It matches the saving of one person with the investment of another.

Question 2

A bond is characterized by several features. Which of the following is NOT a key characteristic of a bond?

Accepted Answer

Dividend payout

Question 3

Suppose a government collects $3 trillion in taxes and spends $2.5 trillion. What is the value of public saving?

Accepted Answer

$0.5$ trillion

Question 4

Which formula correctly represents private saving in a closed economy?

Accepted Answer

$Y - T - C$

Question 5

If a country has a GDP ($Y$) of $12$ trillion, consumption ($C$) of $7$ trillion, government spending ($G$) of $3$ trillion, and taxes ($T$) of $2.5$ trillion, what is the national saving?

Accepted Answer

$Y - C - G = 12 - 7 - 3 = 2$ trillion

Question 6

Which of the following statements about stocks and bonds is correct?

Accepted Answer

Stocks represent partial ownership in a firm, while bonds are certificates of indebtedness.

Question 7

What is the effect of a government budget deficit on the market for loanable funds?

Accepted Answer

It reduces the supply of loanable funds, increases the equilibrium interest rate, and decreases investment.

Question 8

Which equation correctly expresses national saving in a closed economy?

Accepted Answer

$Y - C - G$

Question 9

If the government introduces a tax incentive for saving, what is the expected effect on the market for loanable funds?

Accepted Answer

The supply of loanable funds increases, equilibrium interest rate falls, and investment rises.

Question 10

Which of the following is an example of investment in the sense used by economists?

Accepted Answer

A company builds a new factory.

Question 11

A mutual fund allows savers to:

Accepted Answer

Diversify their investments by pooling resources to buy a portfolio of stocks and bonds.

Question 12

If the interest rate in the market for loanable funds increases, what happens to the quantity of loanable funds supplied?

Accepted Answer

It increases because saving becomes more attractive.

Question 13

Which of the following best describes 'crowding out'?

Accepted Answer

Government borrowing to finance a deficit reduces funds available for private investment.

Question 14

What is the formula for public saving?

Accepted Answer

$T - G$

Question 15

Which of the following would NOT be considered saving in the economic sense?

Accepted Answer

Purchasing a new car for personal use.

Question 16

If a government runs a budget surplus, what is the effect on public saving?

Accepted Answer

Public saving is positive.

Question 17

Which of the following is a direct financial market transaction?

Accepted Answer

An individual purchases a government bond.

Question 18

If the government introduces an investment tax credit, what is the expected effect on the market for loanable funds?

Accepted Answer

Demand for loanable funds increases, equilibrium interest rate rises, and investment increases.

Question 19

Which of the following best explains why mutual funds are attractive to small savers?

Accepted Answer

They allow small savers to diversify their investments and reduce risk.

Question 20

Which of the following is the correct formula for a budget deficit?

Accepted Answer

$G - T$

The Financial System: Structure, Institutions, and Saving in Macroeconomics

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