576PART NINETHE REAL ECONOMY IN THE LONG RUN2.Why is it important for people who own stocks andbonds to diversify their holdings? What type of financialinstitution makes diversification easier?3.What is national saving? What is private saving? Whatis public saving? How are these three variables related?4.What is investment? How is it related to nationalsaving?5.Describe a change in the tax code that might increaseprivate saving. If this policy were implemented, howwould it affect the market for loanable funds?6.What is a government budget deficit? How does it affectinterest rates, investment, and economic growth?1.For each of the following pairs, which bond would youexpect to pay a higher interest rate? Explain.a.a bond of the U.S. government or a bond of aneastern European governmentb.a bond that repays the principal in 2005 or a bondthat repays the principal in 2025c.a bond from Coca-Cola or a bond from a softwarecompany you run in your garaged.
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