Lecture 15
Lecture 15
Lectures 15/16
Lecture 16 Exercise
Lecture 16 Exercise
100
What determines the rate of growth in the economy?
Labor Force x Labor Productivity
100
Who are the savers in our economy? The borrowers?
Household's are net savers. Federal Govt. and businesses are net borrowers
100
If the U.S. saving rate went up from 5% of GDP to 10%, interest rates should rise or fall?
Fall due to more supply of funds.
100
An increase in consumer savings per dollar of income, U.S. interest rates will rise or fall? Why?
Fall, due to supply going up.
100
An increase in corporate borrowing, U.S. interest rates will rise or fall? Why?
Rise, due to the demand going up.
200
In order for income to go up, what has to go up?
Income goes up when output goes up
200
Is buying stocks a form of capital investment? If not, then what is?
No. Businesses buying machines and tools, buying stocks is a form of saving.
200
If the federal budget went from a deficit to a surplus, what should cause interest rates to rise or fall?
Less borrowing, less demand for funds or interest rate "r" goes down.
200
Going from a federal budget surplus to a deficit, U.S. interest rates will rise or fall? Why?
Rise, due to borrowing going up and demand going down.
200
An increase in output, U.S. interest rates will rise or fall? Why?
Rise, due to borrowing going up and demand going down.
300
To increase the country's standard of living, who has to produce more?
The Business Sector
300
when the gov. runs a budget deficit, can they print money to finance the deficit?
NO! They must borrow.
300
The economy goes into a recession: Borrowing will rise or fall? Interest rates will rise or fall?
Borrowing will fall. Interest rates fall due to less demand for funds to finance spending.
300
A decrease in money supply, U.S. interest rates will rise or fall? Why?
Rise, due to supply going down.
300
A change in tax laws cases households to reduce their level of savings, U.S. interest rates will rise or fall? Why?
Rise, due to the supply going up.
400
When businesses earn more money, what happens to the standard of living in the household sector?
Business income becomes household income
400
Where does the govt. get funds? How?
They issue Treasury Securities in the same financial market that everybody borrows in.
400
Foreign savings flow in. Interest rates will rise or fall?
Fall
400
An increase in foreign savings flowing into the country, U.S. interest rates will rise or fall? Why?
Fall, due to the supply going up.
400
China decides to sell its Treasury Securities and take its funds to Europe, U.S. interest rates will rise or fall? Why?
Rise, due to supply going down.
500
What percentage of business income goes to the household (HH) sector?
100%
500
If the govt. taxes businesses and distributes the proceeds to the household sector, what happens to national income? Up, down or the same?
It is all Household income. Zero impact on the level of income. Simply redistribute the income.
500
A fall in U.S. interest rates would increase or decrease the flow of foreign savings into the U.S.?
Decrease
500
A decrease in economic activity, U.S. interest rates will rise or fall? Why?
Fall, due to borrowing and demand going down.
500
Fears of a financial crisis cause financial institutions to build up cash reserves (holding), U.S. interest rates will rise or fall? Why?
Rise, due to demand going up and supply going down.
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