Investment and saving Ch24 Economics Ch09 Macroeconomics

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1 Investment and saving Ch24 Economics Ch09 Macroeconomics MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Economists use the word "capital" to mean A) the tools, instruments, and other produced goods used to produce additional goods and services. B) the funds that firms use to buy and operate their businesses. C) purchases in the market for stocks and bonds. D) the workers that firms employ to produce goods and services. 2) The funds firms use to buy and operate physical capital are referred to as A) physical capital. B) financial capital. C) government capital. D) human capital. 3) An example of financial capital is A) machines. B) buildings. C) computers. D) bonds. 4) Depreciation includes the A) additional value of new capital goods. B) additional value of new financial capital. C) decrease in value of physical capital from use. D) decrease in value of financial capital from use. 5) The total amount spent to buy new physical capital and replace old capital is referred to as A) depreciation. B) net investment. C) savings. D) gross investment. 6) During 2001, suppose a country makes total purchases of $2,000 billion of new capital goods, issu es $1,600 billion of stock, and has $500 billion in capital consumption. Gross investment in this co untry equals A) $2,000 billion. B) $2,500 billion. C) $3,600 billion. D) $4,100 billion. 7) Which of the following is correct? A) Gross investment equals net investment minus depreciation. B) Net investment is the same as capital consumption. C) Gross investment is the total spent on capital, both new and replacement.

2 D) Net investment is the total spent on capital, both new and replacement. 8) Net investment equals A) new capital plus old capital. B) capital plus depreciation. C) gross investment minus depreciation. D) gross investment plus depreciation. 9) The Zonamo company produces waste disposal machines and sells them to militaries all over the world. The company started last year with $10 million of capital on hand and invested $15 millio n in new capital throughout the year. At the end of the year, the company's capital stock was $17 million. Hence, for the year, depreciation equaled and net investment equaled. A) $8 million; $7 million B) $7 million; $8 million C) $25 million; $5 million D) $5 million; $5 million 10) The local Allied Moving Company begins 2002 with capital equal to $250,000. During 2002 the fir m depreciates $150,000 worth of its capital and ends 2002 with capital equal to $250,000. Which st atement correctly summarizes Allied Moving Company's investment? A) Allied Moving Company made no capital investment during the year. B) Allied Moving Company made no gross investment during the year. C) Allied Moving Company made no net investment during the year. D) We need more information to analyze the situation. 11) During 2001, within a country there are total purchases of $1,000 billion of new capital goods, $75 0 billion of stock issued, and $200 billion in depreciation. Net investment in this country equals A) $800 billion. B) $1,550 billion. C) $1,000 billion. D) $1,750 billion. 12) The change in the quantity of capital from one period to the next is equal to A) net investment. B) gross investment. C) depreciation. D) financial investment. 13) The difference between the amount of capital at the beginning of a year and the amount of capital at the end of the year is equal to A) net investment. B) capital consumption. C) gross investment. D) financial consumption. 14) Comparing the existing stock of capital in the United States with the net investment added each y

3 ear from 1970 to 2000, we find that the amount of the net investment was A) not comparable to the capital stock. B) on the average about 3 percent of the capital stock. C) on the average, about 117 percent of the capital stock. D) on the average, about equal to the capital stock. 15) If we look at capital investment in the United States between , we see that A) gross investment increases in all years, while depreciation rises in recessions. B) net investment has been negative during recessions. C) the capital stock declines during recessions and increases the rest of the time. D) the capital stock increases steadily, while gross and net investment fluctuate. 16) Economists use the term wealth to mean A) the same thing as income. B) what a person earns. C) what a person owns. D) the amount of income that is spent and not saved. 17) During 2004, Barbara earned $40,000 as a financial analyst, paid taxes of $5,000 and consumed $3 3,000. If Barbara's wealth was $4,000 at the beginning of 2004, at the end of 2004 Barbara's wealth was A) $2,000. B) $4,000. C) $5,000. D) $6, ) A nation's wealth at the start of a year is equal to the wealth at the start of the previous year plus A) nothing because wealth does not change from one year to the next. B) income. C) saving during the year. D) income minus saving during the year. 19) During 2003, a country's income was $6.0 trillion, its consumption was $5.5 trillion, and its wealth at the beginning of 2003 was $30.0 trillion. The country's wealth at the end of 2003 was A) $30.0 trillion. B) $30.5 trillion. C) $35.5 trillion. D) $36.0 trillion. 20) Equilibrium in the financial markets determines the price of A) financial capital expressed as interest rates. B) financial capital expressed as dollars. C) physical capital expressed as interest rates. D) physical capital expressed as dollars. 21) A demander in a financial market A) wants funds to purchase financial capital. B) wants funds to purchase physical capital.

4 C) lends funds to purchase financial capital. D) lends funds to purchase physical capital. 22) All of the following are financial markets EXCEPT A) stock markets. B) bond markets. C) short-term securities markets. D) physical capital markets. 23) Which of the following is NOT part of the global financial markets? A) short-term securities markets B) bond markets C) real interest rate markets D) stock markets 24) A stock is defined as a A) promise to pay specified sums of money on specified dates. B) certificate of ownership and claim to the profits made by a firm. C) collection of funds that travels the world looking for the highest return. D) set of demanders and suppliers for the savings of households. 25) A promise to pay specified sums of money on specified dates is A) a stock. B) a bond. C) physical capital. D) money. 26) Lulu purchased a security that promises to pay $50 twice a year from January 15, 2003 to January 15, 2010 and then pay $1,000 on January 15, The security is a debt to the company that issue d it. The security is a A) depreciating asset. B) bond. C) share of stock. D) physical capital. 27) Which of the following is an example of investment demand? A) Mary buying stocks for her retirement portfolio B) George purchasing United States savings bonds for his son's college fund C) Scott purchasing a rookie-year baseball card for last year's World Series MVP D) Brian, owner of Bryan Games, purchasing computers to enhance the production of games 28) The opportunity cost of the financial resources used to finance the purchase of capital is A) the real interest rate. B) the supply of investment. C) capital investment. D) the quantity of investment demanded. 29) The real interest rate is the opportunity cost of making an investment A) only if the firm does not need to borrow any of the funds for the investment.

5 B) only if the firm needs to borrow all of the funds for the investment. C) no matter if the firm must borrow the funds or does not need to borrow the funds for the investm ent. D) None of the above answers is correct. 30) Ford Motor Corporation is considering purchasing new technology that will increase productivit y by twenty percent. If Ford Motor Corporation decides to make this investment, then the A) quantity of investment demanded increases. B) quantity of saving increases. C) investment demand increases. D) Ford's profits will decline. 31) Investment demand will A) increase in an expansion and decrease in a recession. B) decrease in an expansion and increase in a recession. C) increase if population growth declines. D) increase if the expected profit decreases. 32) Which of the following decreases investment demand and shifts the investment demand curve lef tward? A) an increase of the real interest rate B) the economy experiences a recession C) technology that increases productivity is introduced D) an economy experiences a rapid increase in population 33) Technological change increases investment demand because it A) lowers the interest rate. B) can create new products. C) has little effect on production cost. D) decreases the need for additional equipment. 34) The investment demand curve shifts in response to changes in the A) real interest rate. B) amount of household savings. C) level of expected profits. D) level of past profits. 35) The investment demand curve shows that the higher the real interest rate, the A) smaller the quantity of investment demanded. B) smaller the demand for investment. C) larger the quantity of investment demanded. D) larger the demand for investment. 36) What happens to the investment demand curve when the economy enters a recession? A) The investment demand curve shifts rightward because the real interest rate falls. B) The investment demand curve shifts leftward because the real interest rate falls. C) The investment demand curve shifts rightward because the expected profit falls. D) The investment demand curve shifts leftward because the expected profit falls.

6 37) The investment demand curve shows the A) negative relationship between the interest rate and the quantity of capital demanded. B) positive relationship between the interest rate and the quantity of capital demanded. C) negative relationship between the investment demand curve and the saving supply curve. D) positive relationship between the investment demand curve and the saving supply curve. 38) The investment demand curve shifts rightward when A) the real interest rate rises. B) the real interest rate falls. C) expected profit increases. D) expected profit decreases. 39) In the figure above, the rightward shift from investment demand curve ID1 to investment demand curve ID2, could be the result of a(n) A) increase in the interest rate. B) decrease in the interest rate. C) increase in expected profit. D) decrease in expected profit. 40) In the figure above, the leftward shift from investment demand curve ID1 to investment demand curve ID3, could be the result of a(n) A) decrease in the interest rate. B) decrease in expected profit. C) advancement in technology. D) increase in the population.

7 41) Which of the above figures shows the effect of an economic expansion on the investment demand curve? A) Figure A B) Figure B C) Figure C D) Figure D 42) Which of the following graphs shows the effect of an increase in the real interest rate on investme nt demand? A) Figure A B) Figure B C) Figure C D) Figure D 43) The saving supply schedule shows that the A) higher the real interest rate, the greater the quantity of saving supplied.

8 B) higher the real interest rate, the greater the opportunity cost of saving. C) higher the real interest rate, the lower the opportunity cost of consumption. D) lower the real interest rate, the greater the quantity of saving supplied. 44) When disposable income increases, saving will A) decrease and there is a movement downward along the saving supply curve. B) increase and there is a movement upward along the saving supply curve. C) not change. D) increase and the saving supply curve shifts rightward. 45) If expectations about future disposable income change, there is A) no change in saving until disposable income actually changes. B) a decrease in saving if people expect disposable income to increase in the future. C) an increase in saving if people expect disposable income to increase in the future. D) a decrease saving if people expect disposable income to decrease in the future. 46) Which of the following factors does NOT change saving supply and hence does NOT shift the saving supply curve? A) disposable income B) the buying power of net assets C) expected profit D) expected future disposable income 47) Which of the following will shift the saving supply curve? A) change in the real interest rates B) change in investment demand C) change in disposable income D) change in expected profit 48) If the real interest rate A) increases, the saving supply curve shifts rightward. B) increases, the saving supply curve shifts leftward. C) decreases, there is a movement along the saving supply curve to a higher quantity of saving. D) decreases, there is a movement along the supply curve to a lower quantity of saving. 49) If the buying power of net assets, then saving supply increases, which is shown by a. A) increases; movement upward along the saving curve B) decreases; a movement downward along the saving curve C) increases; rightward shift of the saving supply curve D) decreases; leftward shift of the saving supply curve 50) Which of the following factors does NOT shift the saving supply curve? A) change in disposable income B) change in buying power of net assets C) change in "animal spirits" D) change in expected future disposable income 51) The saving supply curve has a slope and the investment demand curve has a slope. A) positive; positive B) positive; negative

9 C) negative; positive D) negative; negative 52) In the figure above, an increase in the real interest rate could be a cause of A) shifting the saving supply curve from SS1 to SS2. B) shifting the saving supply curve from SS1 to SS3. C) shifting the saving supply curve from SS2 to SS3. D) None of the above because an increase in the real interest rate will not shift the saving supply cur ve. 53) In the figure above, the shift in the saving supply curve from SS1 to SS2 could be the result of a(n) A) increase in the real interest rate. B) decrease in disposable income. C) increase in expected profit. D) decrease in the buying power of net assets. 54) In the financial market, a shortage of savings occurs when the A) demand for investment exceeds supply of savings. B) supply of savings exceeds demand for investment. C) quantity of savings supplied exceeds the quantity of investment demanded. D) quantity of investment demanded exceeds the quantity of savings supplied. 55) If the real interest rate is less than the equilibrium real interest rate, there is a A) surplus of loans and borrowers cannot find the loans they want. B) shortage of loans and borrowers cannot find the loans they want. C) surplus of loans and borrowers have an easy time finding the loans they want. D) shortage of loans and borrowers have an easy time finding the loans they want.

10 56) In the financial market, when the plans of savers and investors are consistent with each other, A) there is a surplus of savings available to loan. B) the quantity of savings demanded equals the quantity of investment supplied. C) the quantity of savings supplied equals the quantity of investment demanded. D) there is a shortage of savings available to loan. 57) The equilibrium real interest rate is 8 percent. If the real interest rate is A) 9 percent, then the saving supply curve will shift leftward to restore the equilibrium. B) 6 percent, the investment demand curve will shift rightward to restore the equilibrium. C) 10 percent, there is a shortage of saving and loans. D) 6 percent, there is a shortage of saving and loans. 58) In the financial market, if the real interest rate is higher than the equilibrium real interest rate, the re will be a A) shortage of savings. B) surplus of savings. C) surplus of investment. D) None of the above answers is correct. Real interest rate Investment Private saving (percent/year) (bns $1996) (bns $1996) ) The above table gives investment demand and saving supply schedules. If the real interest rate is 6 percent, then there is a of saving and the real interest rate will. A) surplus; rise B) surplus; fall C) shortage; rise D) shortage; fall

11 60) The figure above shows the financial market. The equilibrium real interest rate is and the eq uilibrium quantity of investment is. A) 6 percent; $12 trillion B) 4 percent; $13 trillion C) 8 percent; $11 trillion D) 0 percent; $10 trillion 61) The figure above shows the financial market. If the real interest rate equals 8 percent, then the A) demand for investment exceeds the supply of savings. B) supply of savings exceeds the demand for investment. C) quantity of savings supplied exceeds the quantity of investment demanded. D) quantity of investment demanded exceeds the quantity of savings supplied.

12 62) The figure above shows the financial market. The equilibrium real interest rate is percent an d the equilibrium quantity of investment is. A) 4; $1.8 trillion B) 6; $1.6 trillion C) 8; $1.4 trillion D) None of the above answers is correct. 63) The figure above shows the financial market. If the real interest rate equals 8 percent, there will b e a surplus of A) saving of $0.4 trillion. B) investment of $0.4 trillion. C) saving of $1.8 trillion. D) investment of $1.4 trillion. 64) Comparing the three decades of the 1970s, 80s, and 90s, the lowest real interest rate prevailed in A) 1970s. B) 1980s. C) 1990s. D) 1970s and 1980s. 65) In the decade of the 1970s, real interest rates fell dramatically because of A) a decrease in the price of oil. B) a decrease in savings. C) an increase in the price of oil. D) an increase in investment. 66) Which of the following statements is correct? A) In the 1990s, as a result of technological advances, investment demand increased.

13 B) In the 1990s, as a result of a surge in oil prices, investment demand increased. C) In the 1990s, as a result of higher real interest rates, investment demand increased. D) In the 1990s, as a result of lower population growth rate, investment demand increased. 67) Which of the following statements is FALSE? A) In the early 1970s, the real interest rate was low. B) in early 1970s, an increase in oil prices decreased investment demand. C) In the early 1970s, the users of oil suffered a huge reduction in profits. D) The equilibrium quantity of saving and investment in the 1970s exceeded the equilibrium quantit ies in the 1990s. 68) Between 1973 and 1975 the price of oil increased greatly. Over this period of time, the investment demand curve shifted and the saving supply curve shifted. A) rightward; rightward B) rightward; leftward C) leftward; rightward D) leftward; leftward 69) The history of real interest rates over the years between 1973 and 2002 shows that the real interest rate A) can't be negative. B) fluctuated over a 10 percent range and can be negative. C) has stayed within a 5 percent range and can be negative. D) was negative for most of those years. 70) Starting in 1973, by 2002 the real interest rate had A) risen to about 5 percent because, over this period of time, the demand for investment had increas ed more than the supply of saving. B) fallen to below zero because, over this period of time, the demand for investment had increased more than the supply of saving. C) risen to nearly 10 percent because, over this period of time, the demand for investment had incre ased more than the supply of saving. D) risen to about 5 percent because, over this period of time, the supply of saving decreased and the demand for investment increased. 71) For a government to add to the supply of saving, it must A) borrow. B) have a budget surplus. C) have a budget deficit. D) raise the real interest rate. 72) If a government has a budget deficit, it must A) borrow in the financial market. B) increase taxes.

14 C) lower the real interest rate. D) None of the above answers is correct. 73) During 2001, the United States federal government had a budget surplus. Other things being the same, a budget surplus A) increases total saving supply in the global economy. B) increases investment demand in the global economy. C) decreases total saving supply in the global economy. D) decreases investment demand in the global economy. 74) Government saving is equal to A) the quantity of investment demanded. B) net taxes minus government purchases. C) net taxes plus government purchases. D) private savings minus government purchases. 75) If there is no Ricardo-Barro effect, the government A) plays no direct role in the financial market because it doesn't affect either the investment demand or saving supply curves. B) has negative saving and therefore lowers the real interest rate. C) only affects the investment demand curve in the financial market. D) either increases or decreases total saving as its saving or dissaving shifts the saving supply curve. 76) For the world, investment equals private savings A) minus net taxes plus government purchases. B) plus net taxes plus government purchases. C) minus net taxes minus government purchases. D) plus net taxes minus government purchases. 77) During 2001, the world has investment of $10 trillion, net taxes of $6 trillion, and government pur chases of $8 trillion. Private savings is equal to A) $2 trillion. B) $4 trillion. C) $8 trillion. D) $12 trillion. 78) I equals investment, S equals saving, G equals government purchases, and NT equals net taxes. Using these symbols, the formula showing how investment is financed is A) I = S + (G - NT). B) I = G + (S - NT). C) I = S + (NT - G). D) I = G + S + NT. 79) If there is no Ricardo-Barro effect, an increase in the government budget surplus A) decreases private saving. B) increases private saving. C) decreases saving supply.

15 D) increases saving supply. 80) If there is no Ricardo-Barro effect, a government budget surplus A) increases saving supply. B) decreases saving supply. C) increases investment demand. D) decreases investment demand. 81) During 2001, the world has net taxes of $5 trillion and government purchases of $6.2 trillion. Wit hout a Ricardo-Barro effect, the government's net taxes and spending lead to a in total savin gs and a real interest rate than otherwise. A) increase; higher B) increase; lower C) decrease; higher D) decrease; lower 82) If there is no Ricardo-Barro effect, an increase in the government budget surplus will A) decrease saving supply. B) increase the real interest rate. C) decrease the real interest rate. D) decrease investment. 83) If there is no Ricardo-Barro effect, a government budget surplus the total supply of saving a nd the real interest rate. A) increases; raises B) increases; lowers C) decreases; raises D) decreases; lowers 84) With no Ricardo-Barro effect, a government budget surplus A) decreases saving supply and lowers the real interest rate. B) decreases investment demand and increases the real interest rate. C) increases investment demand and lowers the real interest rate. D) increases saving supply and lowers the real interest rate. 85) Suppose the government has a budget surplus of $2 billion. If there is no Ricardo-Barro effect, w hat occurs? A) The SS curve shifts rightward, lowering the interest rate, and increasing investment. B) The ID curve shifts rightward, raising the interest rate, and increasing investment. C) The SS curve shifts leftward, raising the interest rate, and decreasing investment. D) The ID curve shifts leftward, lowering the interest rate, and decreasing investment. 86) If the government runs a budget surplus, it A) competes with businesses for private saving. B) causes the saving supply curve to shift leftward. C) causes the investment demand curve to shift leftward. D) contributes to financing investment.

16 87) In the figure above, the SS curve is the saving supply curve and the PS curve is the private saving supply curve. Given these curves, there is a government budget and therefore the real interest rate is than otherwise. A) surplus; higher B) surplus; lower C) deficit; higher D) deficit; lower 88) In the figure above, the SS curve is the saving supply curve and the PS curve is the private saving supply curve. The equilibrium interest rate is percent and the equilibrium quantity of investment is. A) 6; $1.6 trillion B) 6; $2.0 trillion C) 4; $1.4 trillion D) 4; $1.8 trillion

17 89) In the figure above, the SS curve is the saving supply curve and the PS curve is the private saving supply curve. The figure shows a situation in which the government has a budget A) surplus of $2 trillion. B) deficit of $2 trillion. C) surplus of $14 trillion. D) deficit of $11 trillion. 90) In the figure above, the SS curve is the saving supply curve and the PS curve is the private saving supply curve. The equilibrium interest rate is percent and the equilibrium quantity of investment is. A) 6; $12 trillion B) 6; $14 trillion C) 4; $13 trillion D) 4; $11 trillion 91) If there is no Ricardo-Barro effect, a government budget deficit decreases A) private savings and increases the real interest rate. B) total savings and increases the real interest rate. C) investment demand and increases the real interest rate. D) investment demand and decreases the real interest rate. 92) The crowding-out effect is the tendency for A) lower private saving to decrease investment. B) higher government budget deficits to increase total savings. C) higher government budget deficits to decrease investment. D) higher private savings to decrease government budget surpluses. 93) The tendency for higher government budget deficits to decrease investment is called the A) deficit effect. B) Ricardo-Barro effect. C) wealth effect.

18 D) crowding-out effect. 94) Suppose government has a budget deficit of $2 billion. If there is no Ricardo-Barro effect, what oc curs? A) The investment demand curve shifts rightward, the interest rate rises, and the quantity of invest ment increases. B) The saving supply curve shifts leftward, the interest rate rises, and the quantity of investment dec reases. C) The investment demand curve shifts leftward, the interest rate falls, and the quantity of investme nt decreases. D) The saving supply curve shifts rightward, the interest rate falls, and the quantity of investment in creases. 95) The crowding-out effect occurs when the government runs a A) deficit so that savings decreases. B) surplus so that investment increases. C) deficit and so that savings increases. D) surplus and so that investment decreases. 96) A country initially has an equilibrium real interest rate of 6 percent and an equilibrium quantity o f investment of $7 trillion. The government then runs a budget deficit. According to the crowding -out effect, the A) investment demand curve shifts leftward, the real interest rate falls, and investment increases. B) saving supply curve shifts rightward, the real interest rate rises, and investment increases. C) investment demand curve shifts rightward, the real interest rate falls, and investment increases. D) saving supply curve shifts leftward, the real interest rate rises, and investment decreases. 97) Suppose the government has a budget deficit of $2 billion. If there is no Ricardo-Barro effect, ho w much crowding out of investment occurs? A) more than $2 billion B) some crowding out occurs, but less than $2 billion C) exactly equal to $2 billion dollars D) no crowding out occurs 98) A prediction of the Ricardo-Barro effect is A) a larger increase in interest rates when the government runs a budget deficit. B) a larger decrease in interest rates when the government runs a budget surplus. C) no effect on the real interest rate when the government runs a budget deficit. D) a larger decrease in investment when the government runs a budget deficit. 99) The Ricardo-Barro effect refers to how the curve shifts in response to a government budget.

19 A) investment demand; surplus B) investment demand; deficit C) saving supply; deficit D) government budget; surplus or deficit 100) The Ricardo-Barro effect argues that the crowding-out effect A) is the result of a government budget surplus and higher interest rates. B) will not occur, because the private saving supply will change to offset any change in government saving. C) is the result of the government budget deficit and higher interest rates. D) will occur, because the private saving supply will change to offset any change in government savi ng. 101) The Ricardo-Barro effect is based on the idea that when the government has a budget deficit. A) people decrease their private saving B) people increase their private saving C) investment demand increases because expected future profits increase D) investment demand decreases because of the higher real interest rate 102) Evidence to support the Ricardo-Barro effect would show that A) higher government budget deficits decrease investment. B) higher government budget surpluses decrease investment. C) government budget deficits increase household consumption. D) government budget deficits have no effect on the real interest rate or investment. 103) Suppose the government has a budget deficit of $2 billion. If the Ricardo-Barro effect is correct, t hen how much crowding out of investment occurs? A) more than $2 billion B) some crowding out occurs, but less than $2 billion C) exactly equal to $2 billion dollars D) no crowding out occurs Real interest rate Investment Private saving (percent/year) (bns $1996) (bns $1996) ) The above table has investment demand and private saving supply schedules. If the government budget surplus is $200 billion, and there is no Ricardo-Barro effect, the equilibrium real interest r ate is and the equilibrium quantity of investment is. A) 6 percent; $600 billion

20 B) 4 percent; $700 billion C) 8 percent, $500 billion D) None of the above answers is correct. 105) The above table has investment demand and private saving supply schedules. If the government budget deficit is $200 billion, and there is no Ricardo-Barro effect, the equilibrium real interest rat e is and the equilibrium quantity of investment is. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) None of the above answers is correct. 106) The above table has investment demand and private saving supply schedules. If the government budget surplus is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rat e is and the equilibrium quantity of investment is. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) None of the above answers is correct. 107) The above table has investment demand and private saving supply schedules. If the government budget deficit is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rate is and the equilibrium quantity of investment is. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) None of the above answers is correct. 108) If investment demand increases, the equilibrium real interest rate and the equilibrium quant ity of investment. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 109) If saving supply decreases, the equilibrium real interest rate and the equilibrium quantity of investment. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases 110) In the late 1990s, the U.S. federal government had a budget surplus. If there is no Ricardo-Barro e ffect, these surpluses the supply of saving and the real interest rate. A) increased; raised

21 B) increased; lowered C) decreased; raised D) decreased; lowered 111) In 2003, the U.S. federal government budget had a budget deficit. If there is no Ricardo-Barro effe ct, this deficit the supply of saving and the real interest rate. A) increased; raised B) increased; lowered C) decreased; raised D) decreased; lowered 112) In the late 1990s, the U.S. federal government had a budget surplus. If there is no Ricardo-Barro e ffect, the budget surplus the real interest rate and the equilibrium quantity of investme nt. A) raised; increased B) raised; decreased C) lowered; increased D) lowered; decreased 113) In 2003, the U.S. federal government had a budget deficit. If there is no Ricardo-Barro effect, the budget deficit the real interest rate and the equilibrium quantity of investment. A) raised; increased B) raised; decreased C) lowered; increased D) lowered; decreased 114) Crowding out can occur when a government budget raises the real interest rate and the equi librium quantity of investment. A) surplus; increases B) surplus; decreases C) deficit; increases D) deficit; decreases 115) What does the Ricardo-Barro Effect predict? A) The level of saving in a developed economy will be very low. B) There is no way to explain animal spirits or irrational exuberance. C) Private saving will offset the impact of government borrowing. D) Government budget deficits crowd out private investment. 116) If the government runs a deficit to fight a war, if there is no Ricardo-Barro effect, what is an impa ct of the deficit? A) the quantity of private saving decreases B) firms purchase more capital equipment C) animal spirits or irrational exuberance is created. D) the real interest rate rises

22 Investment and saving Ch24 Economics Ch09 Macroeconomics MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) A 2) B 3) D 4) C 5) D 6) A 7) C 8) C 9) A 10) C 11) A 12) A 13) A 14) B 15) D 16) C 17) D 18) C 19) B 20) A 21) B 22) D 23) C 24) B 25) B 26) B 27) D 28) A 29) C 30) C 31) A 32) B 33) B 34) C 35) A 36) D 37) A 38) C 39) C 40) B 41) A 42) C 43) A 44) D 45) B 46) C 47) C 48) D 49) D 50) C 51) B 52) D 53) D 54) D 55) B 56) C 57) D 58) B 59) B 60) A 61) C 62) B 63) A 64) A 65) C 66) A 67) D 68) C 69) B 70) A 71) B 72) A 73) A 74) B 75) D 76) D 77) D 78) C 79) D 80) A 81) C 82) C 83) C 84) D 85) A 86) D 87) C 88) A 89) A 90) C 91) B 92) C 93) D 94) B 95) A 96) D 97) B 98) C 99) C 100) B 101) B 102) D 103) D 104) B 105) C 106) A 107) A 108) A 109) B 110) B 111) C 112) C 113) B 114) D 115) C 116) D