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Chapter 18 Testbank 1. Saving equals:

A. current spending minus current income. B. wealth minus assets. C. assets minus liabilities. D. current income minus spending on current needs. 2. Current income minus spending on current needs equals:

A. saving. B. wealth. C. transfers. D. investment. 3. The saving rate equals saving divided by:

A. wealth. B. assets. C. liabilities. D. income.

4. Huda earns $1,000 per week and spends $850 per week on living expenses, puts $50 in a savings account, and buys $100 worth of shares in a stock mutual fund. Huda's saving is ____ and Huda's saving rate is _____.

A. $50; 5% B. $50; 5.9% C. $100; 10% D. $150; 15% 5. Kareem earns $1,500 per week and spends $1,000 per week on living expenses, puts $200 in a savings account, and buys $300 worth of shares in a stock mutual fund. Kareem's saving is ____ and Kareem's saving rate is _____.

A. $200; 13.3% B. $200; 20% C. $300; 20% D. $500; 33.3% 6. Wealth equals:

A. current income minus spending on current needs. B. assets minus liabilities. C. saving minus investment. D. investment minus saving.

7. Assets are:

A. current income minus spending on current needs. B. stocks, bonds, and credit card balances. C. saving minus investment. D. anything of value one owns. 8. Liabilities are:

A. current income minus spending on current needs. B. the debts one owes. C. saving minus investment. D. anything of value one owns. 9. Which of the following is an asset of a family?

A. student loan B. mortgage C. unpaid credit card balance D. checking account balance 10. Which of the following is a liability of a family?

A. checking account balance B. share of stock C. a house D. mortgage

Tahani has the following assets and liabilities:

11. What is Tahani's wealth?

A. $105,000 B. $107,000 C. $111,000 D. $419,000 12. What is the value of Tahani's assets?

A. $308,00 B. $416,000 C. $419,000 D. $422,000 13. What is the value of Tahani's liabilities?

A. $300,000 B. $303,000 C. $308,000 D. $311,000

14. Jihan has the following assets and liabilities:

Jihan's wealth is _____, the value of Jihan's assets is _____ and the value of Jihan's liability is _____.

A. $107,000; $213,000; $100,000 B. $109,000; $213,000; $104,000 C. $111,000 ; $213,000; $100,000 D. $213,000; $317,000; $104,000 15. A measure defined at a point in time is called a(n) ____ variable.

A. stock B. nominal C. aggregate D. flow 16. A flow is a measure defined:

A. per unit of time. B. at a point in time. C. in real terms. D. in nominal terms.

17. Which of the following is a flow?

A. saving B. wealth C. assets D. money 18. Which of the following is a stock?

A. saving B. income C. consumption D. wealth 19. Saving $100 will:

A. increase wealth by $100. B. increase wealth by $100 only if the $100 is used to purchase an asset. C. increase wealth by $100 only if the $100 is used to repay a debt. D. decrease wealth by $100. 20. Saving is a(n) _____ and wealth is a(n) ______.

A. stock; flow B. flow; stock C. asset; liability D. liability; asset

21. The stock of wealth increases more rapidly the faster the flow of ______.

A. income B. saving C. money D. assets 22. If you save $50 per week, then your _____ will increase by $50 per week.

A. investment B. consumption C. taxes D. wealth 23. If you save $500 per month, then your ____ will increase by _____.

A. wealth; $500 only if you have no debt B. income; $500 only if you buy additional assets C. wealth; $500 D. wealth; $500 only if you buy additional assets 24. The flow of _____ increases the stock of _______.

A. money; income B. money; wealth C. investment; profits D. saving; wealth

25. High rates of saving today contribute to _______ in the future.

A. higher tax rates B. more unemployment C. a higher standard of living D. more capital gains 26. If economy A is wealthier than economy B, then:

A. there has been more saving in country A and/or capital gains were larger in country A. B. there has been more saving in country A and/or capital gains were smaller in country A. C. the tax rate is lower in country A and/or the profit rate is higher in country A. D. the tax rate is lower in country A and/or the profit rate is lower in country A. 27. Capital gains are _____ and capital losses are _________:

A. increases in the flow of investment; decreases in the flow of investment. B. increases in the flow of saving; decreases in the flow of saving. C. additions to plant and equipment; the destruction of plant and equipment. D. increases in the value of existing assets; decreases in the value of existing assets. 28. Ilhame owns a beautiful diamond ring she purchased for $2,500. When she has it appraised she learns it is now worth $3,000. Based on this information:

A. Ilhame's saving this year has increased by $500. B. Ilhame's saving this year has decreased by $500. C. Ilhame has a $500 capital gain. D. Ilhame's wealth is unchanged.

29. Jibran owns a classic car he purchased for $50,000. At a car rally he is offered $75,000 for the car. Based on this information:

A. Jibran's saving this year has increased by $25,000. B. Jibran's saving this year has decreased by $25,000. C. Jibran has a $25,000 capital gain. D. Jibran's wealth is unchanged. 30. On January 1, 2007, Jibran purchased shares of stock for $10,000. On December 31, 2007, the same shares are now worth $7,500. Based on this information:

A. Jibran's saving for the year increased by $2,500. B. Jibran's saving for the year decreased by $2,500. C. Jibran has a $2,500 capital gain for the year. D. Jibran has a $2,500 capital loss for the year. 31. Samer uses $300 from his paycheck to pay off his credit card balance. Based on this information:

A. Samer's saving has increased by $300. B. Samer's saving has decreased by $300. C. Samer's wealth is unchanged. D. Samer has a capital loss of $300.

32. Samer has $500 from his paycheck automatically used to purchase U.S. Savings Bonds. Based on this information:

A. Samer's saving has increased by $500. B. Samer's saving has decreased by $500. C. Samer has a capital gain of $500. D. Samer's wealth is unchanged. 33. Wealth decreases as a result of _____ and/or _____.

A. positive saving; capital gains B. negative saving; capital gains C. positive saving; capital losses D. negative saving; capital losses 34. The change in wealth during a period equals:

A. saving + capital gains - capital losses. B. saving - capital gains + capital losses. C. saving - investment + capital gains - capital losses. D. public saving + private saving - transfers.

35. If Alia deposits $1,000 from her paycheck into her checking account and at the same time increases her credit card balance by $1,500, then her wealth ______ and her saving changes by ______:

A. decreases by $500; +$1,000 B. decreases by $1,000; +$500 C. increases by $2,500; -$500 D. decreases by $500; -$500 36. If Alia uses $800 from her checking account to pay her credit card balance, her wealth:

A. increases by $800. B. decreases by $800. C. increases by $1,600. D. does not change. 37. National saving is saving by:

A. households for retirement. B. the government. C. households and firms D. the entire economy.

38. A nation's saving equals its _______ income less its spending on _______.

A. real; investment B. current; current needs C. nominal; investment D. nominal; net taxes 39. Where Y is GDP, C is consumption, I is investment, and G is government spending, if there is no international trade, then national saving equals:

A. C + I + G B. Y - C - G C. Y + C + G D. Y - C - I 40. National saving is done by:

A. only households. B. only businesses. C. only governments. D. households, business, and government.

41. Net taxes equal the amount

A. the government pays the private sector plus the amount of private sector pays the government. B. the government pays the private sector minus the amount the private sector pays the government. C. the business sector pays the government minus the amount the private sector pays the government. D. the private sector pays the government minus the amount the private sector receives from the government. 42. Total taxes minus transfer payments minus government interest payments is called:

A. a budget surplus. B. net taxes. C. a budget deficit. D. national saving. 43. If total government tax collections equal $200 billion, transfer payments equal $75 billion, and government interest payments equal $10 billion, then net taxes equal:

A. $115 billion. B. $125 billion. C. $190 billion. D. $275 billion.

44. Payments by the government to the public for which the government receives no current goods or services in return are called:

A. public saving B. net taxes C. transfer payments D. capital losses 45. Social Security benefits, welfare payments, and farm support payments are examples of:

A. consumption spending B. public interest payments C. investment spending D. transfer payments 46. Saving by households and businesses is called ______ saving.

A. private B. public C. national D. aggregate

47. Where Y is GDP, C is consumption, I is investment, T is net taxes, and G is government spending, if there is no trade, then private saving equals:

A. C + I + G - T B. Y - T - C C. Y - T - G D. Y - C - I 48. The saving of the government sector is called ____ saving.

A. private B. public C. national D. aggregate 49. Where Y is GDP, C is consumption, T is net taxes, and G is government spending, if there is no international trade, then public saving equals:

A. T - G B. Y - T - C C. Y + T - G D. Y - C - T

50. ______ saving equals _____ saving _____ saving.

A. national; private; plus public B. public; national; plus private C. private; national; plus public D. national; public; minus private 51. The excess of government spending over tax collections is:

A. national income. B. national saving. C. national wealth. D. the government budget deficit. 52. Where Y is GDP, C is consumption, T is net taxes, and G is government spending, if there is no international trade, then the government budget deficit equals:

A. T - G B. Y - G C. Y + T - G D. G - T 53. Public saving is positive when:

A. there is a government budget surplus. B. after-tax income of households and businesses is less than consumption expenditure. C. the government's budget is balanced. D. after-tax income of households and businesses is greater than consumption expenditures.

54. Public saving is negative when:

A. there is a government budget surplus. B. there is a government budget deficit. C. the government's budget is balanced. D. after-tax income of households and businesses is greater than consumption expenditures. 55. Private saving is positive when:

A. there is a government budget surplus. B. there is a government budget deficit. C. the government's budget is balanced. D. after-tax income of households and businesses is greater than consumption expenditures. 56. When the government runs a budget deficit, it makes up the difference by:

A. issuing bonds. B. paying down outstanding debt. C. increasing transfer payments. D. increasing public saving. 57. When the government runs a budget surplus, it uses the funds to:

A. issue bonds. B. pay down outstanding debt. C. decrease transfer payments. D. decrease public saving.

58. You are given the following information about the economy:

Private saving equals ____ ; public saving equals ______; and national saving equals ____.

A. 100; 200; 100 B. 100; 100; 200 C. 200; 100; 300 D. 200; 100; 500 59. You are given the following information about the economy:

Public saving is _____ ; private saving is _______ and national saving is ______.

A. 500; 2,000; 500 B. 500; 2000; 2,500 C. 2,000; 500; 3,500 D. 750; 500; 2,750

60. You are given the following information about the economy:

Private saving is _____ ; public saving is ________; and national saving is ______.

A. 800; 200; 600 B. 800; 200; 1,000 C. 1,000; 800; 1,000 D. 1,500; 700; 2,700 61. If government spending increases by $1 million while net taxes are unchanged, then:

A. public saving increases. B. public saving decreases. C. public saving does not change. D. private saving increases. 62. If household saving increases by $4 million, business saving decreases by $4 million, government budget deficit increases by $4 million, then private saving ____ and public saving ______.

A. increases; increases B. increases; decreases C. does not change; increases D. does not change; decreases

63. If household saving decreases by $4 million, business saving increases by $4 million, and the government budget deficit decreases by $4 million, then private saving ____ and public saving ______.

A. increases; increases B. increases; decreases C. does not change; increases D. does not change; decreases 64. These data are available for Econland:

Public saving in Econland equals:

A. -5 B. 5 C. 16 D. 17

65. Based on the following information where negative amounts are indicated by parentheses (), how much does national saving equal?

A. $415 billion. B. $265 billion. C. $250 billion. D. $105 billion. 66. If consumption spending increases by $10 million with no changes in net taxes, then:

A. public saving increases. B. public saving decreases. C. private saving increases. D. private saving decreases. 67. Three broad reasons for saving identified by economists include for _____ reasons.

A. consumption, investment, and exports B. national, public, and private C. life-cycle, precautionary, and bequest D. capital gains, capital losses, and deficits

68. Saving to meet long-term objectives, such as retirement, college attendance, or to purchase a home, is called _____ saving.

A. public B. bequest C. precautionary D. life-cycle 69. Saving for protection against unexpected setbacks, such as the loss of a job or a medical emergency, is called ____ saving.

A. public B. bequest C. precautionary D. life-cycle 70. Saving done for the purpose of leaving an inheritance is called _____ saving.

A. public B. bequest C. precautionary D. life-cycle

71. Which of the following is an example of the life-cycle motive for saving?

A. Huda puts $400 per month in his 401(k) retirement account. B. Jihan sets aside $200 per month in case she has to pay for a new roof for her house. C. Abbas and Bilqis put $2,000,000 in a trust fund that will go to their children when they die. D. Khawlah keeps $15,000 in a money market account to pay expenses in case she loses her job. 72. Which of the following is an example of the precautionary motive for saving?

A. Huda puts $400 per month in his 401(k) retirement account. B. Jihan sets aside $200 per month in case she has to pay for a new roof for her house. C. Abbas and Bilqis put $2,000,000 in a trust fund that will go to their children when they die. D. Khawlah keeps $15,000 in a money market account to pay expenses in case she loses her job. 73. Which of the following is an example of the bequest motive for saving?

A. Huda puts $400 per month in his 401(k) retirement account. B. Jihan sets aside $200 per month in case she has to pay for a new roof for her house. C. Abbas and Bilqis put $2,000,000 in a trust fund that will go to their children when they die. D. Khawlah keeps $15,000 in a money market account to pay expenses in case she loses her job.

74. Farhan and Wijdan agree that they want to save so that they can leave a substantial amount to local charities in their wills. This is an example of the _____ motive for saving.

A. life-cycle B. public C. bequest D. precautionary 75. Farhan and Wijdan just had a baby girl and want to make sure they save enough in the future to send her to college. This is an example of the ____ motive for saving.

A. life-cycle B. bequest C. private D. precautionary 76. Bakr decides to save more because he has heard rumors that his employer will be merging with another firm and many employees may lose their jobs. This is an example of the _____ motive for saving.

A. life-cycle B. public C. private D. precautionary

77. Tariq and Amal are saving more today because they want to make sure that their children will inherit lots of money when they die. This is an example of the _____ motive for saving.

A. life-cycle B. bequest C. private D. precautionary 78. Explanations for the high saving rate in Japan consistent with the life-cycle reason for saving include:

A. long life expectancies and large down payments required for home purchases. B. lifetime employment. C. the desire to leave resources to children who provide support and attention to parents in their old age. D. low unemployment rates in Japan. 79. Explanations for the high saving rate in Japan consistent with the bequest reason for saving include:

A. long life expectancies and large down payments required for home purchases. B. lifetime employment. C. the desire to leave resources to children who provide support and attention to parents in their old age. D. low unemployment rates in Japan.

80. The combination of a ____ saving rate and a ____ real interest rate will result in the largest accumulation of wealth over time.

A. high; high B. high; low C. high; zero D. low; high 81. To the extent that households are target savers, who save to reach a specific goal, an increase in the interest rate _____ household saving and a decrease in the interest rate _____ household saving.

A. increases; decreases B. decreases; increases C. does not affect; increases D. increases; does not affect 82. Empirical evidence indicates that higher real interest rates lead to _____ in savings.

A. modest increases B. substantial increases C. no change in D. modest decreases

83. Psychological factors that may influence the saving rate are ______ and _______.

A. the real interest rate; the demonstration effect B. self control problems; the demonstration effect C. capital gains; the real interest rate D. the desire to leave a bequest; capital gains 84. The self-control hypothesis suggests that people:

A. base their spending decisions (and consequently their saving decisions) on spending decisions of others. B. want to save, but lack the discipline to refrain from consuming. C. substantially decrease their saving when the real interest rate increases. D. control their spending in order to save more when the real interest rate increases. 85. The demonstration effect suggests that people will save less when they

A. base their spending decisions (and consequently their saving decisions) on spending decisions of others who spend more than they do. B. base their saving decisions on their projections of income and spending needs over their lifetime. C. recognize that the real interest rate has increased. D. control their spending in order to save more when the real interest rate increases.

86. Firms will invest in new equipment whenever:

A. the expected cost of the equipment exceeds the expected benefit. B. the expected cost of the equipment is less than the expected benefit. C. the expected cost of the equipment is greater than the value of the marginal product of the equip...