Q&A Hero

Q: At the beginning of the year, United Delivery had trucks valued at $1.3 million. During the year, United Delivery purchased new trucks valued at $500,000. If the value of the trucks at the end of the year was $1.5 million, what is the amount of its net investment and its depreciation during the year?

Q: At the beginning of the year, Becky's wealth was $30,000. During the year, she earned $50,000 of income, paid $6,000 in taxes and consumed $43,000 of goods and services. What is Becky's wealth at the end of the year?

Q: Does a stock certificate or a bond represent ownership of a company and a claim on its profits?

Q: Describe two main differences between bonds and stocks.

Q: List three different types of financial markets and discuss the type of financial instruments traded in the markets.

Q: In the nation's financial markets, what are the various ways a firm can obtain financial capital?

Q: If a firm wants to buy a piece of capital equipment, is this firm a demander or supplier in the financial market?

Q: Define wealth. What is the relationship between wealth and saving?

Q: Is wealth the same thing as income?

Q: "When a company's depreciation is larger than its gross investment, net investment becomes negative and the firm's capital stock decreases." Is the previous statement correct or incorrect? Explain your answer.

Q: What is the distinction between gross investment and net investment?

Q: Define gross investment and net investment. Discuss the relationship between gross investment and net investment.

Q: What is the difference, if any, between physical capital and financial capital?

Q: If the government runs a budget deficit to fight a war and there is no Ricardo-Barro effect, what is an impact of the deficit? A) The quantity of private saving decreases. B) Firms purchase more capital equipment. C) Animal spirits or irrational exuberance is created. D) The real interest rate rises. E) The quantity of investment increases.

Q: What does the Ricardo-Barro Effect predict? A) The level of saving in a developed economy will be very low. B) There is no way to explain animal spirits or irrational exuberance. C) Private saving will offset the impact of government borrowing. D) Government budget deficits crowd out private investment. E) Net investment and gross investment will be equal.

Q: Crowding out can occur when a government budget ________ raises the real interest rate and the equilibrium quantity of investment ________. A) surplus; increases B) surplus; decreases C) deficit; increases D) deficit; decreases E) surplus; does not change

Q: In 2012, the U.S. federal government had a budget deficit. If there is no Ricardo-Barro effect, the budget deficit ________ the real interest rate and ________ the equilibrium quantity of investment. A) raised; increased B) raised; decreased C) lowered; increased D) lowered; decreased E) did not change; did not change

Q: In the late 1990s, the U.S. federal government had a budget surplus. If there is no Ricardo-Barro effect, the budget surplus ________ the real interest rate and ________ the equilibrium quantity of investment. A) raised; increased B) raised; decreased C) lowered; increased D) lowered; decreased E) did not change; did not change

Q: In 2012, the U.S. federal government budget had a budget deficit. If there is no Ricardo-Barro effect, this deficit ________ the demand for loanable funds and ________ the real interest rate. A) increased; raised B) increased; lowered C) decreased; raised D) decreased; lowered E) did not change; did not change

Q: In the late 1990s, the U.S. federal government had a budget surplus. If there is no Ricardo-Barro effect, these surpluses ________ the supply of loanable funds and ________ the real interest rate. A) increased; raised B) increased; lowered C) decreased; raised D) decreased; lowered E) did not change; did not change

Q: If saving supply decreases, the equilibrium real interest rate ________ and the equilibrium quantity of investment ________. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases E) does not change; does not change

Q: If investment demand increases, the equilibrium real interest rate ________ and the equilibrium quantity of investment ________. A) rises; increases B) rises; decreases C) falls; increases D) falls; decreases E) does not change; does not change

Q: If the supply of loanable funds curve shifts rightward from the curve shown in the figure above, the shift could be the result of A) a rise in expected future income. B) a decrease in disposable income. C) a decrease in the demand for loanable funds. D) a decrease in the supply of loanable funds. E) a decrease in wealth.

Q: If the supply of loanable funds curve shifts rightward from the curve shown in the figure above, the shift could be the result of A) a rise in expected future income. B) an increase in disposable income. C) a decrease in the demand for loanable funds. D) a decrease in the supply of loanable funds. E) an increase in wealth.

Q: If the supply of loanable funds curve shifts rightward from the curve shown in the figure above, the shift could be the result of A) a fall in expected future income. B) a decrease in disposable income. C) a decrease in the demand for loanable funds. D) a decrease in the supply of loanable funds. E) an increase in wealth.

Q: In the figure above, a movement from point A to point C can be the result of A) a fall in expected future income. B) an increase in disposable income. C) a rise in the real interest rate. D) a fall in the real interest rate. E) an increase in wealth.

Q: If the demand for loanable funds curve shifts rightward from the curve shown in the figure above, the shift could be the result of A) an increase in expected profit. B) a decrease in expected profit. C) a rise in the real interest rate. D) a fall in the real interest rate. E) a decrease in real GDP.

Q: In the figure above, a movement from point A to point C can be the result of A) an increase in expected profit. B) a decrease in expected profit. C) a rise in the real interest rate. D) a fall in the real interest rate. E) an increase in the government budget deficit.

Q: In 2007 the real interest rate in the United States was 2 percent. By 2013, the equilibrium real interest in the United States was ________ because the ________. A) 3.5 percent; United States began to recover from the deep recession and financial crisis of 2008-2009 B) 0.5 percent; United States began to recover from the deep recession and financial crisis of 2008-2009 C) 0.5 percent; United States experienced a deep recession as a result of a financial crisis in 2008-2009 D) 3.5 percent; United States experienced a deep recession as a result of a financial crisis in 2008-2009 E) not yet calculated; effects of the financial crisis of 2008-2009 have not yet been tallied

Q: When the U.S. government launched a massive rescue plan in response to the 2008-2009 financial crisis, the overall demand for loanable funds ________ because the ________. A) increased; demand by households, businesses, and financial institutions increased as did the federal government demand B) decreased; demand by households, businesses, and financial institutions changed by the same amount as the federal government demand C) decreased; demand by households, businesses, and financial institutions decreased by more than the federal government demand increased D) increased; demand by households, businesses, and financial institutions increased by more than the federal government demand increased E) did not change; demand by households, businesses, and financial institutions changed by the same amount as the federal government demand

Q: When the U.S. government launched a massive rescue plan in response to the 2008-2009 financial crisis, one of the main actions taken was to ________ because the desire was to lessen the severity of the recession by ________. A) increase the supply of loanable funds; encouraging decrease in investment B) decrease the supply of loanable funds; encouraging decrease in investment C) increase the supply of loanable funds; limiting the decrease in investment D) decrease the supply of loanable funds; limiting the decrease in investment E) increase the demand of loanable funds; encouraging decrease in investment

Q: The Ricardo-Barro effect says that a government budget deficit leads to A) a higher real interest rate. B) a lower real interest rate. C) no change in the real interest rate. D) an increase in demand for loanable funds. E) an increase in the quantity of investment.

Q: If there is no Ricardo-Barro effect, a government budget deficit will ________ the equilibrium real interest rate and ________ the equilibrium quantity of investment. A) raise; increase B) raise; decrease C) lower; increase D) lower; decrease E) not change; not change

Q: The "crowding-out effect" refers to how a government budget deficit A) shifts only the supply of loanable funds curve leftward. B) shifts only the demand for loanable funds curve leftward. C) shifts both the demand for and the supply of loanable funds curves leftward. D) decreases the equilibrium quantity of investment. E) increases the equilibrium quantity of investment.

Q: When there is no Ricardo-Barro effect, a government budget surplus ________ the real interest rate because the ________ loanable funds increases. A) raises; demand for B) lowers; demand for C) raises; supply of D) lowers; supply of E) None of the above answers is correct because the real interest rate does not change.

Q: Suppose the government has a budget surplus. Then A) private saving is equal to investment. B) private saving is greater than investment and government saving is positive. C) private saving is less than investment and government saving is positive. D) private investment is greater than the sum of government saving and private saving. E) private saving is greater than investment and government saving is negative.

Q: With no Ricardo-Barro effect, a government budget surplus A) increases the supply of loanable funds. B) increases the demand for loanable funds. C) decreases the supply of loanable funds. D) decreases the demand for loanable funds. E) has no effect on either the supply or the demand for loanable funds.

Q: As a result of the government's rescue of financial firms and the auto industry in 2008, which of the following occurred? i) The government's demand for loanable funds increased the real interest rate. ii) Investment expenditures were crowded out. iii) The supply of loanable funds curve shifted leftward. A) i and ii B) i, ii and iii C) i only D) ii only E) ii and iii

Q: During financial crisis of 2008-09, the government rescued financial firms and the auto industry. As a result, A) the government's budget deficit increased, the government's demand for loanable funds increased and private investment was crowded out. B) real interest rates decreased. C) the supply of loanable funds decreased in response to the government's budget deficit. D) the private demand for loanable funds increased. E) the government's rescue plan created a surplus of loanable funds.

Q: The above table has the private demand for loanable funds and the private supply of loanable funds schedules. If the government budget deficit is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of investment is ________. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) 8 percent; $700 billion E) 4 percent; $500 billion

Q: The above table has the private demand for loanable funds and the private supply of loanable funds schedules. If the government budget surplus is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of loanable funds is ________. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) 8 percent; $700 billion E) 4 percent; $500 billion

Q: The above table has the private demand for loanable funds and the private supply of loanable funds schedules. If the government budget deficit is $200 billion, and there is no Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of investment is ________. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) 8 percent; $700 billion E) 4 percent; $500 billion

Q: The above table has the private demand for loanable funds and the private supply of loanable funds schedules. If the government budget surplus is $200 billion, and there is no Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of loanable funds is ________. A) 6 percent; $600 billion B) 4 percent; $700 billion C) 8 percent, $500 billion D) 8 percent; $700 billion E) 4 percent; $500 billion

Q: Suppose the government has a budget deficit of $2 billion. If the Ricardo-Barro effect is correct, then how much crowding out of investment occurs? A) more than $2 billion B) some crowding out occurs, but less than $2 billion C) exactly equal to $2 billion dollars D) No crowding out occurs and investment does not change. E) No crowding out occurs because investment increases by $2 billion.

Q: Evidence to support the Ricardo-Barro effect would show that A) higher government budget deficits decrease investment. B) higher government budget surpluses decrease investment. C) government budget deficits increase household consumption. D) government budget deficits have no effect on the real interest rate or investment. E) higher government budget deficits raise the real interest rate.

Q: The Ricardo-Barro effect is based on the idea that ________ when the government has a budget deficit. A) people decrease their private saving B) people increase their private saving C) investment demand increases because expected future profits increase D) investment demand decreases because of the higher real interest rate E) people immediately increase their tax payments

Q: The Ricardo-Barro effect argues that the crowding-out effect A) is the result of a government budget surplus and higher interest rates. B) will not occur, because the private saving supply will change to offset any change in the government budget deficit. C) is the result of the government budget deficit and higher interest rates. D) will occur, because the private saving supply will change to offset any change in the government budget deficit. E) is stronger when the government runs a budget surplus than when it runs a budget deficit.

Q: A prediction of the Ricardo-Barro effect is A) a larger increase in the real interest rate when the government runs a budget deficit. B) a larger decrease in the real interest rate when the government runs a budget surplus. C) no effect on the real interest rate when the government runs a budget deficit. D) a larger decrease in investment when the government runs a budget deficit. E) a larger decrease in investment when the government runs a budget surplus.

Q: The Ricardo-Barro effect refers to how ________ in response to a government budget ________. A) investment demand changes; surplus B) investment demand changes; deficit C) saving supply changes; deficit D) government budget changes; surplus or deficit E) investment demand and saving supply change; surplus

Q: According to the Ricardo-Barro effect, an increase in the government budget deficit A) does not change the real interest rate. B) lowers the real interest rate. C) shifts the supply of loanable funds curve leftward. D) has no effect on the nominal interest rate but does change the real interest rate. E) shifts the demand for loanable funds curve leftward.

Q: According to the Ricardo-Barro effect, a government budget A) surplus increases private saving supply. B) deficit increases private saving supply. C) deficit decreases private saving supply. D) surplus decreases private investment demand. E) deficit decreases private investment demand.

Q: Suppose the government has a budget deficit of $2 billion. If there is no Ricardo-Barro effect, how much crowding out of investment occurs? A) more than $2 billion B) some crowding out occurs, but less than $2 billion C) exactly equal to $2 billion dollars D) No crowding out occurs and investment does not change. E) No crowding out occurs because investment increases.

Q: A country initially has an equilibrium real interest rate of 4 percent and an equilibrium quantity of investment of $2 trillion. The government's budget deficit then increases. According to the crowding-out effect, the A) demand for loanable funds curve shifts leftward, the real interest rate falls, and investment increases. B) supply of loanable funds curve shifts rightward, the real interest rate rises, and investment increases. C) demand for loanable funds curve shifts rightward, the real interest rate falls, and investment increases. D) demand for loanable funds curve shifts rightward, the real interest rate rises, and investment decreases. E) supply of loanable funds curve shifts leftward, the real interest rate falls, and investment decreases.

Q: Suppose the government's budget deficit increases by $500 billion. If there is no Ricardo-Barro effect, what occurs? A) The demand for loanable funds curve shifts rightward, the real interest rate rises, and the quantity of loanable funds increases. B) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds decreases. C) The demand for loanable funds curve shifts leftward, the real interest rate falls, and the quantity of loanable funds decreases. D) The supply of loanable funds curve shifts rightward, the real interest rate falls, and the quantity of loanable funds increases. E) The supply of loanable funds curve shifts leftward, the real interest rate rises, and the quantity of loanable funds increases.

Q: The crowding-out effect describes how a government budget ________ ________ the real interest rate and thereby ________ equilibrium investment. A) deficit; raises; decreases B) deficit; lowers; increases C) surplus; raises; decreases D) surplus; lowers; decreases E) deficit; lowers; decreases

Q: If there is no Ricardo-Barro effect, an increase in the budget deficit A) decreases the amount of investment. B) lowers the equilibrium real interest rate. C) increases the amount of investment. D) decreases the demand for loanable funds. E) increases the supply of loanable funds.

Q: The crowding-out effect implies that a government budget deficit ________ the demand for loanable funds and ________ equilibrium investment. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) does not change; does not change

Q: The tendency for higher government budget deficits to decrease investment is called the A) deficit effect. B) Ricardo-Barro effect. C) wealth effect. D) crowding-out effect. E) inflation effect.

Q: The crowding-out effect is the tendency for A) lower private saving to decrease investment. B) higher government budget deficits to increase total savings. C) higher government budget deficits to decrease investment. D) higher private savings to decrease government budget surpluses. E) lower private saving to increase the budget deficit.

Q: If there is no Ricardo-Barro effect, a government budget deficit increases A) private savings and raises the real interest rate. B) the supply of loanable funds and raises the real interest rate. C) the demand for loanable funds and raises the real interest rate. D) investment demand and lowers the real interest rate. E) private savings and lowers the real interest rate.

Q: In the figure above, the DLF curve is the demand for loanable funds curve and the PDLF curve is the private demand for loanable funds curve. If there is no Ricardo-Barro effect, the figure shows the situation in which the government has a ________ so that the equilibrium real interest rate is ________ and the equilibrium quantity of investment is ________. A) budget surplus; 4 percent; $1 trillion B) budget deficit; 4 percent; $1 trillion C) budget deficit; 6 percent; $1.5 trillion D) budget surplus; 6 percent; $1.5 trillion E) balanced budget; 6 percent; $1.5 trillion

Q: In the figure above, the DLF curve is the demand for loanable funds curve and the PDLF curve is the private demand for loanable funds curve. If there is no Ricardo-Barro effect, the figure shows a situation in which the government has a budget A) deficit of $1 trillion. B) surplus of $1 trillion. C) deficit of $0.5 trillion. D) deficit of $1.5 trillion. E) surplus of $0.5 trillion.

Q: In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. The equilibrium interest rate is ________ percent and the equilibrium quantity of loanable funds is ________. A) 6; $12 trillion B) 6; $14 trillion C) 4; $13 trillion D) 4; $11 trillion E) 4; $14 trillion

Q: In the figure above, if there is no Ricardo-Barro effect, the government has a budget ________ because the ________. A) surplus of 0.2 trillion; SLF curve lies to the right of the PSLF curve. B) surplus of 0.4 trillion; SLF curve shows a larger quantity of LF than the PSLF curve. C) deficit of 0.2 trillion; SLF curve lies to the right of the PSLF curve. D) deficit of 0.4 trillion; SLF curve shows a smaller quantity of LF than the PSLF curve. E) surplus of -0.2 trillion; SLF curve lies to the right of the PSLF curve.

Q: In the figure above, if there is no Ricardo-Barro effect, the government has a ________ because ________. A) budget surplus; the SLF curve lies to the right of the PSLF curve. B) budget deficit; the SLF curve lies to the right of the PSLF curve. C) balanced budget; there is no Ricardo-Barro effect. D) budget surplus; there is no Ricardo-Barro effect. E) budget deficit; there is no Ricardo-Barro effect.

Q: In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. If there is no Ricardo-Barro effect, the figure shows a situation in which the government has a budget A) surplus of $0.2 trillion. B) deficit of $0.2 trillion. C) surplus of $1.4 trillion. D) deficit of $1.6 trillion. E) surplus of $1.8 trillion.

Q: In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. If there is no Ricardo-Barro effect and the government now runs a balanced budget, A) the interest rate will increase from 4 percent to 6 percent. B) the equilibrium interest rate is 6 percent and investment is $1.6 trillion. C) the equilibrium interest rate is 4 percent and investment is $1.8 trillion. D) there is a surplus of investment funds and the interest rate falls to 4 percent. E) there is shortage of investment funds of $0.4 trillion.

Q: In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. The equilibrium interest rate is ________ percent and the equilibrium quantity of loanable funds is ________. A) 6; $1.6 trillion B) 6; $2.0 trillion C) 4; $1.4 trillion D) 4; $1.8 trillion E) 4; $2.0 trillion

Q: In the figure above, the SLF curve is the supply of loanable funds curve and the PSLF curve is the private supply of loanable funds curve. Given these curves, there is a government budget ________ and therefore the real interest rate is ________ than it would be otherwise. A) surplus; higher B) surplus; lower C) deficit; higher D) deficit; lower E) deficit; not different

Q: The table above gives a nation's investment demand and saving supply schedules. It also has the government's net taxes and expenditures. The loanable funds market is in equilibrium when the real interest rate is A) 4 percent. B) 5 percent. C) 6 percent. D) 7 percent E) 3 percent

Q: The table above gives a nation's investment demand and saving supply schedules. It also has the government's net taxes and expenditures. When the real interest rate is 4 percent, the supply of loanable funds is equal to A) $80 billion. B) $30 billion. C) $50 billion. D) $90 billion. E) $10 billion.

Q: The table above gives a nation's investment demand and saving supply schedules. It also has the government's net taxes and expenditures. The government has a budget A) surplus of $60 billion. B) surplus of $20 billion. C) deficit of $20 billion. D) deficit of $60 billion. E) surplus of $40 billion.

Q: If there is no Ricardo-Barro effect, a government budget surplus ________ the supply of loanable funds and ________ equilibrium investment. A) increases; increases B) increases; decreases C) decreases; increases D) decreases; decreases E) does not change; does not change

Q: If there is no Ricardo-Barro effect, when the government runs a budget surplus, it A) competes with businesses for private saving. B) shifts the supply of loanable funds curve leftward. C) shifts the demand for loanable funds curve leftward. D) contributes to financing investment. E) shifts the demand for loanable funds curve rightward.

Q: India's government runs a government budget surplus. If there is no Ricardo-Barro effect, the surplus means that the A) private supply of loanable funds curve lies to the left of the supply of loanable funds curve. B) private demand for loanable funds curve lies to the left of the demand for loanable funds curve. C) private supply of loanable funds curve lies to the right of the supply of loanable funds curve. D) private supply of loanable funds curve is the same as the supply of loanable funds curve. E) None of the above answers is correct.

Q: China's government runs a budget surplus. As a result, A) if there is no Ricardo-Barro effect, the supply of loanable funds curve lies to the right of the private supply of loanable funds curve. B) interest rates should increase. C) the Ricardo-Barro effect predicts that the real interest rate will increase. D) the quantity of loanable funds decreases. E) saving will exceed investment.

Q: Suppose the government has a budget surplus of $2 billion. If there is no Ricardo-Barro effect, what occurs? A) The supply of loanable funds curve shifts rightward, lowering the interest rate, and increasing investment. B) The demand for loanable funds curve shifts rightward, raising the interest rate, and increasing investment. C) The supply of loanable funds curve shifts leftward, raising the interest rate, and decreasing investment. D) The demand for loanable funds curve shifts leftward, lowering the interest rate, and decreasing investment. E) The supply of loanable funds curve shifts leftward, lowering the interest rate, and increasing investment.

Q: With no Ricardo-Barro effect, a government budget surplus A) decreases the supply of loanable funds and lowers the real interest rate. B) decreases the demand for loanable funds and increases the real interest rate. C) increases the demand for loanable funds and lowers the real interest rate. D) increases the supply of loanable funds and lowers the real interest rate. E) increases the demand for loanable funds and raises the real interest rate.

Q: If there is no Ricardo-Barro effect, a government budget surplus ________ the total supply of loanable funds and ________ the real interest rate. A) increases; raises B) increases; lowers C) decreases; raises D) decreases; lowers E) does not change; does not change

Q: If there is no Ricardo-Barro effect, an increase in the government budget deficit A) raises the equilibrium real interest rate. B) lowers the equilibrium real interest rate. C) decreases the demand for loanable funds. D) decreases the supply of loanable funds. E) increases the supply of loanable funds.