CH26

A budget surplus
  
xreduces the government’s debt
increases the government’s debt
x exists when government spending is greater than tax revenues
occurs when the government has debt equal to zero.
 
If the tax revenue of the federal government is less than its spending, then the federal
government necessarily
  
runs a budget deficit
runs a budget surplus
will increase taxes
will run a tax credit
 
 
As an alternative to selling shares of stock as a means of raising funds, a large company
could, instead,
  
sell bonds
purchase bonds.
invest in physical capital
buy stocks
 
 
The source of the supply of loanable funds
 
is saving and the source of demand for loanable funds is investment.
is investment and the source of demand for loanable funds is saving
and the demand for loanable funds is saving
and the demand for loanable funds is investment
 
 
If the inflation rate is 2 percent and the real interest rate is 3 percent, then the nominal
interest rate is (N=inflation rate + real interest)
  
5 percent
7 percent.
1 percent.
17 percent.
 
 
The real interest rate is the
  
interest rate corrected for inflation.
interest rate as usually reported by banks.
difference between the interest rate charged by banks on the loans they make and the interest rate
paid by banks to their depositors
difference between the average dividend yield on stocks and the average interest rate on bonds.
 

The primary economic function of the financial system is to

 
match one person’s saving with another person’s investment
keep interest rates low
provide expert advice to savers and investors
run a budget surplus
 

 
A closed economy:
  
does not trade with other economies
does not trade within its own economies
is outward looking
allows financial intermediation
 
 

Other things the same, when an economy increases its saving rate
 
consumption falls now and production rises later
consumption and production rise now. 
consumption rises now and production rises later
consumption falls now and production falls later
 
 

A bond is a
  
certificate of indebtedness
financial intermediary
certificate of partial ownership in an enterprise.
None of the others is correct.
 

At the broadest level, the financial system moves the economy’s scarce resources from
  
savers to borrowers
households to financial institutions
financial institutions to business firms and government.
the rich to the poor.

 
When a country saves a larger portion of its GDP than it did before, it will have
  
more capital and higher productivity
more capital and lower productivity.
less capital and higher productivity
less capital and lower productivity

Crowding out occurs when investment declines because

  
a budget deficit makes interest rates rise.
a budget deficit makes interest rates fall.
a budget surplus makes interest rates rise.
a budget surplus makes interest rates fall.
 

The nominal interest rate is the

  
interest rate as usually reported by banks
interest rate corrected for inflation
real rate of return to the lender
real cost of borrowing to the borrower.