Saving, Investment, And The Financial System

Question 1

What is the financial system

Answer 1

Financial systems are the group of institutions in the economy that help to match one person’s savings with another person’s investment.

Question 2

Saving and investment are key ingredients to long-economic growth.
A. True
B. False

Answer 2

True

Question 3

When a country saves a large portion of its GDP, more resources are available for investment in capital, and higher capital raises a country’s productivity and living standard.
A. True
B. False

Answer 3

True

Question 4

Savers supply their money to the financial system with the expectation that they will get it back with interest at a later date.
A. True
B. False

Answer 4

True

Question 5

Borrowers demand money from the financial system with the knowledge that they will be required to pay back with interest at a later date.
A. True
B. False

Answer 5

True

Question 6

What are financial markets

Answer 6

Financial markets are financial institutions through which savers can directly provide funds to borrowers.

Question 7

The two most important financial markets in the economy are the bond market and the stock market.
A. True
B. False

Answer 7

True

Question 8

What is a Bond

Answer 8

Bond is a certificate of indebtness that specifies the obligation of the borrower to the holder of the Bond.

Question 9

A bond is an IOU
A. True
B. False

Answer 9

True

Question 10

What are the two characteristics of a Bond

Answer 10

1. The bond’s term
2. The bond’s credit risk

Question 11

What is the Bond’s term

Answer 11

It is the length of time until the bond matures. All else equal, long-term bonds pay higher rates of interest than short-term bonds.

Question 12

What is the Bond’s credit risk

Answer 12

It is the probability that the borrower will fail to pay some of the interest or principal. All else equal, the more risky a bond is, the higher its interest rate.

Question 13

What is a Stock

Answer 13

Stock is a claim to partial ownership in a firm

Question 14

What is an equity finance

Answer 14

Equity finance is the sale of stock to raise money.

Question 15

The prices at which they share trade on stock exchanges are determined by the supply and demand for the stock.
A. True
B. False

Answer 15

True

Question 16

The price of stock generally reflects the perception of a company’s future profitability.
A. True
B. False

Answer 16

True

Question 17

What are financial intermediaries

Answer 17

Financial intermediaries are financial institutions through which savers indirectly provide funds to borrowers.

Question 18

The term intermediary reflects the role of the institutions in standing between savers and borrowers.
A. True
B. False

Answer 18

True

Question 19

What is a debt finance

Answer 19

A debt finance is the sale of bonds to raise money

Question 20

What is a mutual fund

Answer 20

Mutual fund is an institution that sells shares to the public and uses the proceeds to buy a portfolio of stocks and bonds.

Question 21

What is Accounting

Answer 21

Accounting is the process of recording financial transactions pertaining to a business.

Question 22

What is National Saving

Answer 22

National saving is the total income in the economy that remains after paying for consumption and government purchases.

Question 23

National saving equals private saving and public saving.
A. True
B. False

Answer 23

True

Question 24

National saving (S)= Y-C-G=I
A. True
B. False

Answer 24

True

Question 25

What is Private saving

Answer 25

Private saving is the income that households have left after paying for taxes and consumption.

Question 26

Private saving formula is Y-C-T A. True B. False

Answer 26

True

Question 27

What is Public saving

Answer 27

Public saving is the tax revenue that the government has left after paying for its spending.

Question 28

Public saving formula is T-G A. True B. False

Answer 28

True

Question 29

What is Budget surplus

Answer 29

Budget surplus is the excess of tax revenue over government spending.

Question 30

Budget surplus is T>G A. True B. False

Answer 30

True

Question 31

What is a budget deficit

Answer 31

Budget deficit is a shortfall of tax revenue from government spending.

Question 32

Budget deficit is T

Answer 32

True

Question 33

With a government budget deficit , public saving is begativr, and the public sector is thus dis-solving. A. True B. False

Answer 33

True

Question 34

What is the market for loanable funds

Answer 34

It is the market in which those save supply funds and those who want to borrow to invest demand funds.

Question 35

Saving is the source of the supply for loanble funds. A. True B. False

Answer 35

True

Question 36

Investment is the source of the demand for loanable funds. A. True B. False

Answer 36

True

Question 37

Net exports always equals 0. A. True B. False

Answer 37

True

Question 38

A higher saving rate could lead to a higher rate of growth of GDP. A. True B. False

Answer 38

True

Question 39

What is a government debt

Answer 39

Government debt is the sum of past budget deficits and surpluses.

Question 40

What is crowding out

Answer 40

Crowding out is a decrease in investment that results from government expenditure and borrowing.

Question 41

What is a vicious circle

Answer 41

It is the cycle that results when deficits reduce the supply of loanable funds, increase interest rates, discourage investment, and result in slower economic growth.