Week 2: Output and Prices & Savings, Investment and Wealth + Quiz

Question 1

saving

Answer 1

left over from income after expenditure has been spent

Question 2

assets

Answer 2

• anything of value that one owns

Question 3

worth

Answer 3

assets - liabilities

Question 4

stock

Answer 4

measure defined at a point in time

e.g. water in a tub

Question 5

flow

Answer 5

• measure defined per unit of time

- e.g. rate of water flowing into the tub

Question 6

capital gains

Answer 6

• asset value increases

Question 7

capital loss

Answer 7

• asset loses value

Question 8

why do ppl save

Answer 8

• precautionary saving

- bequest saving

Question 9

national saving

Answer 9

• total saving done by private sector and public sector

Question 10

government budget surplus

Answer 10

1. Known as public saving. Inve
2. When income exceeds expenditures. “Savings” is another term for “budget surplus”.
3. When the government has collected more tax ($) than the amount of money they have spent.

Question 11

• government budget deficit

Answer 11

• public debt

Question 12

low household savings bad

Answer 12

• households vulnerable to negative shocks of unemployment
• unless compensated by a rise in business and government saving
• low saving rate does signal a problem of growing inequality

Question 13

financial market equilibrium

Answer 13

• S=I
• savings = investment
• S > I, excess supply of savings, r will be bid down

Question 14

investment and financial markets

Answer 14

• savings are demanded by firms wishing to invest in new capital goods
• firms make capital investment by:
• > borrowing in the financial market
• > using its own accumulated profits
• > Flows of investment bear a negative relationship with interest rates

Question 15

Vickie earns $1000 per week and spends $850 per week on living expense. She puts the rest into a savings account. Vickie’s savings is _____ and her savings rate is ______.

Answer 15

$150, 15%

Question 16

Assets - liabilities = ?

Answer 16

Savings

Question 17

Mary has:
Two cars = $15 000
House = $400 000
Mortgage = $300 000
Cash = $1 000
Car loans = $5 000
Cheque account balance = $3 000
Credit card balance = $3 000

What is Mary’s wealth?

Answer 17

Assets = $15 000 + 400 000 + 1000 + 3000 = 419 000
Liabilities = 300 000 + 5 000, 3000 = 308 000
A - L = $111 000

Question 18

A measure defined at a point in tie is called a _____ variable

Answer 18

Stock

Question 19

If Jay owns a classic car he purchased for $50 000 and is offered $75 000 for the car, what increase is this?

Answer 19

$25 000 capital gain.

Question 20

If Aleksandra deposits $1000 from her pay cheque into her cheque account and at the same time increases her credit card balance by $1500, then her savings equals:

Answer 20

-$500

Question 21

Explanations for the low savings rate in Australia consistent with the life-cycle reason for savings include:

Answer 21

Well developed financial markets making it easy to borrow against home equity.

Why save when you can access equity from your home whenever?

Question 22

Assuming no international trade and Y = C + I + G, what is national savings?

Answer 22

National Savings = Y - C - G

Or i

Question 23

The excess of government tax collections over government spending is:

Answer 23

The government budget surplus

Question 24

GDP: $2000
Consumption: $1500
Government Spending: $300
Net taxes = $400

Private savings equals _____ and national savings equals _____

Answer 24

$2000 = 1500 + 300 + (Net tax - Government Spending) + Private Savings

Private savings = 100
National savings = 100 + 100 = 200

Another way to look at it is:
If GDP = C + G + I
Then national savings = GDP - C - G
National savings = $200
To work out private savings then $200 - (net taxes - government spending)