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Chapters 12,13,16

Other things the same, a government budget deficit will reduce

both public and national saving

if there is a surplus of loanable funds, then

the quantity of loanable funds supplied > quantity of loanable funds demanded and the interest rate is above equilibrium

Budget Surplus

excess tax over gov spending
T-G=public saving

Budget Deficit

shortfall of tax revenue from gov spending
G-T= -(public saving)

If the economy is at point A in 2007, then it will definitely remain at pointA in 2008 if , between 2007 and 2008,

K doubles, # of workers doubles, H doubles
natural resources and tech remain constant

the discount rate is the interest rate that

the Fed charges banks for loans

22 graph is consistent with the statement that

returns to capital become increasingly smaller at the amount of capital per worker increases.

In a closed economy, national saving equals

private saving plus public saving

When Fed sells assets from its portfolio to the public with the intent of changing the money supply,

those assets are government bonds and the Fed's reason for selling them is to increase the money supply

We would expect the interest rat on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that

Bond A has a term of 20 years and Bond B has a term of 2 years

Proprietary technology is knowledge that is

known only by the company that discovered it

Nastech Pharmaceuticals announed it has developed a nasal spray that would reduce hunger cravings. Ceteris Paribus, we would expect

the demand for existing shares of stock in this company to increase, so price would rise.

Of the following which is NOT included in M1 or M2
-small time deposits
-demand deposits
-money market mutual funds
-U.S. Treasury bills

U.S. Treasury Bills

If the federal funds rate was above the target level the Fed could move it by

buying bonds. Thus, increasing the money supply

If the supply of the loanable funds shifted rightward, then

eqil interest rate would decrease, and equil quantity of LF would increase

A perpetuity is distinguished from other bonds in that it

never maturressss

If Congress instituted an investment tax credit, the interest rate would

rise and savings would rise

Productivity is defined as

the quantity of goods and services produced from each unit of labor input

Who was appointed chairman of the Board of Governors by Pres George W. Bush?

Ben Bernanke

1. mutual funds allow people with small amounts of money to diversify.
2. mutual funds provide the skills of professional money managers blah blah blah...
Which of these do economists agree with?

The first statement

If gov's expenditures exceeded its receipts, it would likely

sell bonds directly to public ( increasing money supply)

an increase in taxes would ________ private saving and ________ public saving


Suppose that an American opens and operates a candy factory in Finland. This is an example of

foreign direct investment.
American saving finances Finish investment

Investment in physical capital, like investment in human capital, has _____________

an opportunity cost.

To decrease the money supply, the Fed can

sell gov bonds or increase the discount rate

In a market economy, we know that a resource has become scarcer when

its price rises relative to other prices

countries experience political instability with lower standards of living due to

lack of respect for property rights

If a country's saving rate increases, then in the long run

productivity and real GDP per person both increase

made 40 cabinents with 320 hours of labor. What is their productivity?


Liquidity refers to

the ease with which an assert is converted to the medium of exchange

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