1. In an economy with no government sector or foreign sector, saving must equal investment because
a. Total demand is equal to consumption and investment.
b. Total income is equal to consumption and saving.
c. Total income is equal to total demand.
d. All of the above
e. None of the above
2. If everything else is held equal a decrease in the size of the population will ______total output and _______per capita output.
3. If the private sector saves 10 percent of its income and the government raises taxes by $200 to finance public investments, total investment private and public investment will increase by _______.
4. If a country runs a trade surplus to finance increased current consumption, it will have to reduce consumption in the future to pay back its borrowings. _______ (True/False)
5. Policies That Promote Capital Deepening. Which of the following will promote economic growth through capital deepening?
a. Higher taxes used to finance universal health care
b. Increased imports to purchase new DVD players for consumers
c. Increased imports to purchase supercomputers for industry
6. Diminishing Returns to Capital and Real Wages. Explain why this statement is wrong: Since capital is subject to diminishing returns, an increase in the supply of capital will reduce real wages.
7. Government Spending, Taxes, and Investment. Suppose a government places a 10 percent tax on incomes and spends half the money from taxes on investment and half on public consumption goods, such as military parades. Individuals save 20 percent of their income and consume the rest. Does total investment (public and private) increase or decrease in this case?
8. Trade Deficits and Capital Deepening. The United States ran large trade deficits during the 1980s and 1990s. What data would you want if you were to investigate whether these trade deficits led to increased or decreased capital deepening?