EC140 Chapter Notes - Chapter 23: Credit Risk, Disposable And Discretionary Income, Stock Market

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EC140 Full Course Notes

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Finance- acivity of providing the funds that inance expenditures on capital. Money- what we use to pay for goods and services and fop and to make inancial transacions. Physical capital- tools, instruments, machines, buildings, and other items that have been produced in the past and that are used today to produce g&s. Financial capital- the funds used to pay for physical capital. Investment increases the quanity of capital and depreciaion decreases it. Gross investment- the total amount spent on new capital. Net investment- the change in the value of capital. Wealth- is the value of all the things that people own: also increases when the market value of assets increases. Saving- amount of income that"s not paid in taxes or spent on consumpion goods: saving increases wealth. To make real gdp grow, wealth and savings must be turned into investment and capital. Businesses and households acquire funds to inance a purchase through bank loans.

Related Questions

The average propensity to consume (APC) equals

the change in real disposable income divided by the change in consumption expenditures.

the change in consumption expenditures divided by the change in real disposable income.

real disposable income divided by consumption expenditures.

consumption expenditures divided by real disposable income.

The consumption function shows how much

households plan to consume per year at each level of real disposable income.

households plan to consume per year at each level of savings.

households plan to consume per year at each possible interest rate.

real disposable income people will earn at each income tax bracket.

Saving is

the accumulation of past periods of savings while savings is the amount of disposable income that is not consumed in a given period of time.

the amount one does not consume in a given period of time while savings is the accumulation of past periods of saving.

the difference between disposable income and spending on goods and services while savings is the difference between real GDP and disposable income.

the difference between real GDP and disposable income while savings is the difference between disposable income and consumption spending.

Thinking as an economist would, which is true of investment?

		Investment represents spending on capital goods.
		Investment is a stock concept.
		Investment is putting money into stocks and bonds.
		It is the portion of disposable income that is not used for consumption or saving.

An appreciation of the U.S. dollar ________ the price of U.S. imports, and ________ the price of U.S. exports.

		lowers, lowers
		increases, increases
		increases, lowers
		lowers, increases

QUESTION 33

Other things being equal, if input prices rise in a country, then there would be

		cost-push inflation.
		demand-pull inflation.
		cost-push deflation.
		more production and a lower price level.

mauvetortoise195

Since the United States has negative net foreignâ investment, its

A. net capital flow must be negative.

B. domestic saving must be less than its domestic investment.

C. exports must be greater than its imports.

D. domestic investment must be less than its domestic saving.

Expansionary fiscal policy is less effective in an open economy because

A. increases in the money supply will reduce interest rates and lower the value of theâ dollar, reducing aggregate demand.

B. increases in government spending can increase interestâ rates, which increases the value of the dollar and crowds out net exports.

C. increases in government spending will be partly spent on importedâ goods, which do not benefit the domestic economy.

D. increases in taxes reduceâ consumption, which in turn reduces consumption of imports and increases net exports.

When the Federal reserve uses contractionary monetary policy to reduceâ inflation, it

A. sells treasury securities increasing interestâ rates, leading to a stronger dollar that lowers net exports in an open economy.

B. buys treasury securities decreasing interestâ rates, leading to a weaker dollar that lowers consumption of durables in a closed economy.

C. sells treasury securities decreasing interestâ rates, leading to a stronger dollar that lowers domestic investment in a closed economy.

D. buys treasury securities increasing interestâ rates, leading to a weaker dollar that increases net exports in an open economy.

If a country saves more than it investsâ domestically, then its net foreign investment must be (positive, negative, or zero)?

5. Suppose the U.S. Congress passes a budget which increases individual income

taxes by $120 billion and increases infrastructure spending (airports, roads,

bridges, etc.) by $50 billion. The increase in income taxes is concentrated at the top,

so the tax increase causes personal consumption expenditures to fall by only $30

billion. Use this information to answer the questions below. (20 pts)

a. At constant interest rates (âother things equalâ), what would these policy

changes do to national saving and domestic investment spending?

Change in S =

Change in I =

b. Closed economy analysis: Assuming the U.S. financial system is closed to

international financial flows, draw an S/I diagram to illustrate the effect of

these policy changes on (1) U.S. interest rates and (2) the quantity of domestic

investment spending. Incorporate your numerical answers from part (a) into

your diagram.

c. Open economy analysis: Now assume that the U.S. financial system is open

and that the U.S. is small enough in the global financial system that you can

ignore the effect of these policy changes on global interest rates. Draw an S/I

diagram to illustrate the effect of the policy changes on (1) U.S. net capital

flows and (2) domestic investment spending. When drawing your diagram,

assume that the U.S. would have had net capital inflow without the policy

changes.

EC140 Chapter Notes - Chapter 23: Credit Risk, Disposable And Discretionary Income, Stock Market

EC140 Full Course Notes

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