Economics 213 Principles of Macroeconomics Practice Question Set for Exam 3 ʹ KE
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Course
Economics 213
Institution
Economics 213
Savings, Investment and the Financial System
Consider the following transactions and use them for the next two questions:
i) Bruce Wayne borrows $1,000,000 from Gotham Bank in order to build his new
home, Wayne Manor
ii) Clark Kent has $10,000 he is not using at the moment and he buys a bond s...
Economics 213
Principles of Macroeconomics 3. Capital or financial markets serve
a) only to sell shares of companies to the public.
Practice Question Set for Exam 3 KEY
b) to coordinate domestic and foreign savings.
c) to bring savers and investors together.
d) equate the nominal and real interest rate.
Savings, Investment and the Financial System e) to promote business investment.
4. Investment, in economics, refers to
Consider the following transactions and use them for the next two questions: a) the purchase of stocks and bonds by households.
b) the purchase of additional capital by firms.
i) Bruce Wayne borrows $1,000,000 from Gotham Bank in order to build his new c) your retirement portfolio.
home, Wayne Manor d) the purchase of goods and services.
ii) Clark Kent has $10,000 he is not using at the moment and he buys a bond sold by e) All of the above refer to investment.
Lex Luther
iii) Natalia Romanova decides to raise money for her business, SpyTrainingAcademy, 5. Which of the following actions would an economist consider as an investment? Check all
and issues $40,000,000 worth of stock in its Initial Public Offering (IPO) that apply.
iv) Steve Rogers buys $50,000 of SpyTrainingAcademy stock a) Moe buys a new house.
v) Dick Grayson goes to Walmart and spends $10 on a new cape b) Larry purchases stock in IBM.
vi) c) Curley buys a new van for his catering business.
update its infrastructure d) Shemp puts $500 into his retirement fund each month
vii) Raven Darkhölme issues $1,00,000 in bonds in order to expand her business and
open a second store 6. Ken purchases a bond issued by Ford Motor Company. Ford uses the money to buy new
viii) Sam Wilson takes 15% of his paycheck from his employer, Stark Enterprises, and machinery for one of its factories.
puts it into his 401k a) Ken and Ford are both saving.
ix) Gamora Z. W. B. Titan takes out a loan from Xandar National Bank in order to b) Ken and Ford are both investing.
purchase new equipment and update the technology in her business c) Ken is investing while Ford is saving.
d) Ken is saving while Ford is investing.
1. In the scenarios above, who is Saving?
a) Bruce Wayne, Natalia Romanova, Dick Grayson and Raven Darkhölme 7. The market for loanable funds determines the ___.
b) Clark Kent and Sam Wilson a) inflation rate
c) Bruce Wayne, Natalia Romanova, Raven Darkhölme and Gamora Titan b) nominal interest rate
d) c) real interest rate
e) Clark Kent, Raven Darkhölme, Sam Wilson and Gamora Titan d) corporate risk return rate
e) equity/debt ratio of a company
2. In the scenarios above, who is Investing?
a) Natalia Romanova, Steve Rogers, Sam Wilson and Gamora Titan 8. The real interest rate (r) is
b) Bruce Wayne, Clark Kent, Steve Rogers and Sam Wilson a) the nominal interest rate times the inflation rate.
c) Bruce Wayne, Natalia Romanova, Raven Darkhölme and Gamora Titan b) the nominal interest rate plus the inflation rate.
d) c) the nominal interest rate minus the inflation rate.
e) d) the nominal interest rate divided by the inflation rate.
e) the price level divided by the money supply.
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9. Consider the market for loanable funds. In that market, what does r represent? 13. Consider the market for loanable funds. If there is an increase in the supply of loanable
funds, the equilibrium interest rate would _____ and the amount of savings and investment
i) The cost associated with saving money would _______.
ii) The benefit/reward associated with saving money a) increase; increase
iii) The real interest rate b) increase; decrease
iv) The inflation rate c) increase; no effect
v) The cost associated with borrowing money d) no effect; no effect
vi) The benefit/reward associated with borrowing money e) decrease; increase
a) Only i and ii are correct 14. Consider the market for loanable funds. If there is a decrease in the demand for loanable
b) i, iv and vi funds, the equilibrium interest rate would _____ and the amount of savings and investment
c) ii, iii and v would _________.
d) i, ii and iii a) increase; increase
e) ii, iii and v b) decrease; decrease
c) increase; no effect
d) no effect; no effect
e) decrease; increase
10. In the market for loanable funds, the demand for loanable funds is made up of ___ and is
___ related to the real interest rate. 15. Consider the market for loanable funds. If there is a decrease in the supply of loanable funds,
a) borrowers; negatively the equilibrium interest rate would _____ and the amount of savings and investment would
b) borrowers; positively __________.
c) savers; negatively a) increase; increase
d) savers; positively b) increase; no effect
e) both savers and borrowers; positively c) increase; decrease
d) no effect; no effect
11. In the market for loanable funds, the supply of loanable funds is made up of ____ and is e) decrease; increase
____ related to the real interest rate.
a) borrowers; negatively
b) borrowers; positively 16. Suppose the government introduces a new incentive for individuals to save money for
c) savers; negatively retirement (say, people can save more money for retirement that is tax-deferred until later).
d) savers; positively How would this affect the market for loanable funds and the interest rate? The _______
e) both savers and borrowers; positively curve would ______, causing the equilibrium interest rate to ________.
a) Supply; decrease; rise
12. Consider the market for loanable funds. If there is an increase in the demand for loanable b) Supply; increase; fall
funds, the equilibrium interest rate would _____ and the amount of savings and investment c) Supply; increase; remain unchanged
would __________. d) Demand; decrease; fall
a) increase; increase e) Demand; increase; rise
b) increase; decrease f) Demand; increase; remain unchanged
c) increase; no effect
d) no effect; no effect
e) decrease; increase
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, 17. Suppose a new tax plan is passed that eliminates tax breaks on firms that purchase new 22. Which of the following is fiat money?
physical capital. How would this affect the market for loanable funds? What would happen a) cigarettes
to the equilibrium interest rate (r*) and the amount of Savings (S) and Investment (I) in the b) paper money
country? c) gold
a) Fall in r*; increase in S & I d) sugar
b) Fall in r*; decrease in S & I e) rum
c) No change in r*; increase in S & I
d) Rise in r*; decrease in S & I 23. Demand deposits are also known as ____.
e) Rise in r*; increase in S & I a) savings accounts
b) checking accounts
18. Tom Sayer loves to go mountain biking. While shopping for a new bike, he notices that the c) time-deposits
new GHOST Kata FS 5 mountain bike is around $2,000. He knows that this 1 bike is valued d) U.S. government bonds
about the same as 200 movie tickets or 100 decent bottles of wine or 2 new iPhones. This is e)
an example of the ______ function of money.
a) trading 24. Time deposits are also known as ____.
b) store of value a)
c) medium of exchange b) checking accounts
d) value added c) savings accounts
e) unit of account d)
e) U.S. government bonds
19. Huckleberry Finn is a local electrician. On his next payday, he sets aside $100 of his paycheck
into his savings account, to be used at some later date for about the same $100. This is an 25. Which of the following assets is the most liquid?
example of the _____ function of money. a) savings account
a) trading b) checking account
b) store of value c) gold
c) medium of exchange d) a U.S. government bond
d) value added e) share of IBM stock
e) unit of account
26. Which of the following assets is the most liquid?
20. Becky Thatcher teaches school. On her next payday, she trades $100 for food at Kroger. a) savings account
This is an example of the _________ function of money. b) gold
a) trading c) real estate
b) store of value d) stock of IBM
c) medium of exchange e) U.S. government bond
d) value added
e) unit of account 27. Which of the following statements about money is (are) correct?
a) Money is a more efficient form of trade than barter.
21. Which of the following could NOT be commodity money? b) Money allows greater specialization.
a) gold c) The purpose of money is to create wealth.
b) precious stones d) All of the above are correct.
c) cigarettes e) Only a and b are correct.
d) paper money
e) silver
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28. What is the largest component of M1? 34. How are checking accounts at commercial banks (SunTrust) classified as money?
a) a) Included in M1 only
b) Total Checking Accounts b) Included in M2 only
c) Savings Accounts c) Included in both M1 and M2
d) Currency (held outside of banks) d) Not counted as money
e) Gold
35. How are checking accounts at thrifts (Tennessee Credit Union) classified as money?
29. spring 2022? a) Included in M1only
a) $500 Million b) Included in M2 only
b) $1.5 Billion c) Included in both M1 and M2
c) $450 Billion d) Not counted as money
d) $900 Billion
e) $20.7 Trillion 36. How is gold classified as money?
a) Included in M1 only
30. 2) over the last 20 or 30 years? b) Included in M2 only
a) It has increased tremendously it is 3 or 4 times larger than it was a few decades ago c) Included in both M1 and M2
b) It has increased somewhat it is about double what it was a few decades ago d) Not counted as money
c) It has stayed about the same
d) It has fallen somewhat it used to be twice as much as it was a few decades ago 37. How are U.S. Government Bonds classified as money?
e) It has fallen tremendously it used to be 5 times larger than it was a) Included in M1 only
b) Included in M2 only
31. What is the largest component of M2? c) Included in both M1 and M2
a) Checking Accounts d) Not counted as money
b) M1 all cash, checking and savings accounts
c) Savings Accounts 38. How are savings accounts classified as money?
d) Certificate of Deposits a) Included in M1 only
e) Gold b) Included in M2 only
c) Included in both M1 and M2
32. spring 2022? d) Not counted as money
a) $100 Billion
b) $2.5 Trillion 39. Which of the following is NOT included in M2?
c) $21.8 Trillion a) Cash (in pockets, purses, cash registers, etc.)
d) $150 Trillion b) savings accounts
e) $500 Trillion c) time deposits (certificate of deposits)
f) One gazillian! d) retail money market mutual funds
e) All of the above are included in M2.
33. How is currency (outside of banks) classified as money?
a) Included in M1 only 40. Which of the following is NOT included in M1?
b) Included in M2 only a) currency held by the public.
c) Included in both M1 and M2 b) small time deposits
d) Not counted as money c) checking accounts
d) savings accounts
e) All of the above are included in M1.
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