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| 1.
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All of the following are valid definitions of national saving EXCEPT: |
| | A) | Total output less the sum of investment, consumption and government expenditures. |
| | B) | Total output less the sum of consumption expenditure and government purchases |
| | C) | Total output less total expenditures on current needs. |
| | D) | Private saving plus the government’s surplus |
| | E) | Public plus private saving |
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| 2.
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You are given the following information about the economy:
House hold saving = 300
Business Saving = 700
Government Purchases = 1,000
Government transfers and interest payments = 500
Government tax revenue = 2,000
GDP =5,000 |
| | A) | 300; -200 |
| | B) | 700; 0 |
| | C) | 1,000; 0 |
| | D) | 1,000; 1,500 |
| | E) | 1,000; 2,000 |
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| 3.
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Life-cycle saving means that households: |
| | A) | Save at a constant rate over their lifetime. |
| | B) | Separate their life-time consumption path from their income profile. |
| | C) | Always save more as they get older. |
| | D) | Vary their saving according to the phase of the business cycle. |
| | E) | Consume a constant fraction of their income in each year. |
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| 4.
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If government increases its budget surplus we would expect to see a _____ in the real rate of interest, _____ national saving and ______ investment |
| | A) | Rise; lower; lower |
| | B) | Fall; lower; higher |
| | C) | Rise; higher; lower |
| | D) | Fall; higher; higher |
| | E) | Fall; lower; lower |
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| 5.
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An entrepreneur is considering how many limousines to purchase when he starts up a limousine service. Below are his estimates of the number of limousine rentals the service will make during a year, depending on the number of limousines available.
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::Table 1::/sites/dl/free/0077108310/329318/ch22qu5.JPG','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif">Table 1 (15.0K)</a>]]>Table 1
After paying all non-interest expenses, the owner expects to net €10 per rental. Each limousine costs €50,000. How many limousines should he purchase if the real interest rate is 5.5%? |
| | A) | 1 |
| | B) | 2 |
| | C) | 3 |
| | D) | 4 |
| | E) | 5 |
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| 6.
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If household saving increases by €3 million, business saving decreases by €2 million, and the government budget deficit decreases by €1 million, then private saving ____ and public saving _______. |
| | A) | Increases; increases |
| | B) | Increases; decreases |
| | C) | Does not change; increases |
| | D) | Does not change; decreases |
| | E) | Decreases; increases |
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| 7.
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These data are available for Euroland:
Private saving = 58
Government transfer and interest payments = 12
Government purchases of goods and services = 25
Government tax revenue = 30
Public saving in Euroland equals: |
| | A) | 7 |
| | B) | -7 |
| | C) | 16 |
| | D) | 17 |
| | E) | 29 |
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| 8.
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Charles has the following assets and liabilities:
Car €10,000
House €300,000
Mortgage €100,000
Cash €1,000
Car loans €4,000
Bank account balance €2,000
Credit card balance €1,000
What is Charles's wealth? |
| | A) | €206,000 |
| | B) | €208,000 |
| | C) | €210,000 |
| | D) | €312,000 |
| | E) | €416,000 |
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| 9.
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If a technological improvement increases the marginal product of capital it will lead to a _______ real rate of interest, a _____ in saving and a _____
in investment: Which of the following is a flow? |
| | A) | Higher; fall; fall |
| | B) | Lower; rise; fall |
| | C) | Lower; fall; rise |
| | D) | Higher; rise; rise |
| | E) | Higher; fall; rise |
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| 10.
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Bill’s ice cream shop is considering buying a sate of the art ice cream maker for €100,000. The machine can produce 10,000 cartons per year. If cartons of ice cream sell for €2 per carton the rate of return on the investment is: |
| | A) | 20% |
| | B) | 15% |
| | C) | 10% |
| | D) | 5% |
| | E) | Zero |
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