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Econ Exam 2 Review copy - Macroeconomics Exam2 Spring2011...

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Macroeconomics Exam 2 Spring 2011 ECON 2305 EXAM 2 REVIEW Exam Makeup: 38 Multiple Choice Questions 75 Minutes Number 2 Pencils and Calculator Chapters 13, 15, 16, and 17; Heavily weighted on chapters 13 and 16 Chapter 13- Saving, Investment, and the Financial System Saver o Use financial intermediaries to indirectly provide funds to borrowers o Put money in the bank or purchase MMMFs Borrower o Get money from financial markets and intermediaries, supplied by savers Capital Investments o Investment is the purchase of new capital o In economics, investment is not the purchase of stocks and bonds o Examples Company building a new factory, buying equipment Households build a new house Financial intermediaries o Institutions through which savers indirectly provide funds to savers o Example Banks Mutual Funds Institutions that sell shares to the public and use the proceeds to buy portfolios of stocks and bonds National Saving o Equal to investment o I = (Y – C – G) + (T – G) Public saving = T – G Private Saving = Y – C – G (Y-C-G) = (Y-C-G-T) + (T-G) o Closed Economy Investment is equal to Y – C – G No net exports o Taxes are net of transfer payments o Taxes revenue goes to government Loanable Funds o Graph o Demand is borrowers making investments o Supply is national saving (Y-C-G) = (Y-C-G-T) + (T-G) o In equilibrium nation saving is equal to domestic investment o There is a deficit if supply of loanable funds shifts left, a higher interest rate and lower saving occurs Saving Inventive o Tax reform 1
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Macroeconomics Exam 2 Spring 2011 Promotes domestic investment o Supply of loanable funds shifts right and supply goes up and interest rate goes down Opposite in a government budget deficit 2
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