The ____ identity says that ____ and ____ are always equal for the economy as a whole.

Question 1 options:

a)	savings-investment spending; saving; investment spending

b)	balanced budget; saving; investment spending

c)	balanced budget; tax revenues; all government spending

d)	savings-investment spending; tax revenues; all government spending

Question 2(5 points)

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Domestic savings and foreign savings are:

Question 2 options:

a)	equal in terms of the composition of total savings.

b)	not necessary for investment spending, since the government funds such spending.

c)	used for investment spending only when there is unplanned investment spending.

d)	sources of funds for investment spending.

Question 3(5 points)

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If MegaCorporationborrows $8,000 and agrees to pay the lender $9,000 in one year, the annual interest rate on the loan is approximately _____%.

Question 3 options:

a)

11.8

b)

10.5

c)

12.5

d)

9.0

Question 4(5 points)

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Financial markets _____ transaction costs.

Question 4 options:

a)

eliminate

b)

reduce

c)

ignore

d)

increase

Question 5(5 points)

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The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a(n) _____ in the demand and a(n) _____ in the supply of loanable funds in domestic markets.

Question 5 options:

a)	increase; increase

b)	increase; decrease

c)	decrease; decrease

d)	decrease; increase

Question 6(5 points)

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In the loanable funds market, borrowers:

Question 6 options:

a)	lose money to unexpected increases in the inflation rate.

b)	are not affected by changes in the inflation rate.

c)	are best represented by the demand for loanable funds.

d)	are best represented by the supply of loanable funds.

Question 7(5 points)

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Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

Question 7 options:

a)	$1,470.59.

b)

$1,500.

c)	$1,250.55.

d)

$1,530.

Question 8(5 points)

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Which asset is the LEAST liquid?

Question 8 options:

a)	a corporate bond

b)	a checking account balance

c)	ownership of one-fourth of a privately held company

d)

cash

Question 9(5 points)

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A common strategy employed to reduce risk of a financial loss is to:

Question 9 options:

a)	buy financial assets from developing countries because their national currencies are more stable than the U.S. dollar.

b)	buy real assets instead of financial assets.

c)	buy and sell assets through a mutual fund, since mutual funds cannot lose money.

d)	diversify financial assets, so that their risks of failure are unrelated.

Question 10(5 points)

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Assume a closed economy in which GDP is $20 trillion. If consumption is $14 trillion, government spending is $3 trillion, taxes are $1 trillion, and government transfers are $0, what is the government budget balance?

Question 10 options:

a)	a deficit of $3 trillion

b)	a surplus of $2 trillion

c)	a surplus of $3 trillion

d)	a deficit of $2 trillion

Question 11(5 points)

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If disposable income increases:

Question 11 options:

a)	there will be a leftward movement along the consumption function.

b)	there will be a rightward movement along the consumption function.

c)	the consumption function will shift downward.

d)	the consumption function will shift upward.

Question 12(5 points)

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In a simple, closed economy (no government or foreign sector), if the marginal propensity to save decreases, the marginal propensity to consume will:

Question 12 options:

a)	remain constant.

b)	fluctuate randomly.

c)

increase.

d)

decrease.

Question 13(5 points)

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Suppose the marginal propensity to consume changes from 0.75 to 0.9. How will this affect the consumption function?

Question 13 options:

a)	The slope will increase.

b)	Autonomous consumption will increase.

c)	The slope will increase, and autonomous consumption will increase.

d)	The function will shift downward.

Question 14(5 points)

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If real GDP is $1,000 billion, and aggregate spending is $850 billion, then the change in inventories will be:

Question 14 options:

a)	-$1,850 million.

b)	$150 million.

c)	-$150 million.

d)	$1,850 million.

Question 15(5 points)

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In an economy with no taxes or imports, if disposable income decreases by $2,000, and consumption decreases by $1,500, the marginal propensity to consume is _____.

Question 15 options:

a)

0.25

b)

0.5

c)

0.6

d)

0.75

Question 16(5 points)

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Question 16 options:

a)

$800.

b)

$100.

c)

$400.

d)

$3,200.

Question 17(5 points)

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Assume a closed economy with no government and a fixed aggregate price level and constant interest rate. Furthermore, assume that the country's consumption function isC= 200 + 0.75YD, whereYDis disposable income, andCis consumption, and that planned investment is $75. What will happen if aggregate wealth decreases by $100, all else equal?

Question 17 options:

a)	There will be no multiplier effect on real GDP, since there is a drop in aggregate wealth.

b)	The income-expenditure equilibrium real GDP will increase by more than $100.

c)	The aggregate spending line will shift downward.

d)	Planned investment will increase.

Question 18(5 points)

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If the stock market crashes:

Question 18 options:

a)	GDP will increase.

b)	unplanned inventory investment will be negative.

c)	the aggregate consumption function will shift down.

d)	the aggregate consumption function will shift up.

Question 19(5 points)

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The multiplier process assumes that:

Question 19 options:

a)	interest rates are constantly changing.

b)	prices are perfectly flexible.

c)	the economy is open and that there is free trade.

d)	the aggregate price level is fixed.

Question 20(5 points)

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Suppose that the aggregate consumption function is given by the equationC= 200 + 0.8YD, whereCrepresents consumption, andYDrepresents disposable income. If all employers announce in September a guarantee to give all employees a large bonus in December, which equation could represent the new aggregate consumption function?

Question 20 options:

a)	C= 200 + 0.9YD

b)	C= 100 + 0.8YD

c)	C= 250 + 0.8YD

d)	C= 200 + 0.7YD