Unformatted text preview: nvestment remained unchanged. C. national saving and investment decrease by $1 billion. *** D. private saving and investment increase by $1 billion. 33. In the market for loanable funds, which of the following events will lead to an increase in the equilibrium interest rate and an increase in savings and investment? A. Government introduces a new policy which makes more people eligible for an Individual Retirement Account or IRA. The benefit of IRA is that it allows some savings to be sheltered from Income Tax. B. Government introduces investment tax credits for the firms. *** C. Government budget changes from surplus to deficit as government increases expenditure with no change in tax revenue. D. [All of the above] 34. Which of the following events is likely to improve the growth rate of a country? A. The government decides to impose tariff which discourages inflow of foreign direct investment. B. There is an increase in the political instability in the country. C. Government increases the subsidy to public universities and provides tax credit for investment in R&D. *** D. The high school drop‐out rate increases in the country. 35. Suppose Japan produces only digital cameras and MP3 players. The resources used to produce these goods are not specialized – that is, the same set of resources is equally useful in producing each good. Based on this, Japan’s production possibilities are best represented by A. a bowed out PPF. B. a straight line PPF. *** C. an upward sloping PPF. D. a discontinuous PPF. [Use the following information to answer questions 36–37.] Consumption (C) $8,400
Investment (I) 2,200
Exports (X) 600
Imports (M) Net Exports (X – M) –1000
Government Expenditures (G) GDP (Y) 12,500 36. Imports are _______ . A. 400 B. –400 C. 1,600 *** D. –1,600 E. [None of the above] 37. Government expenditures are _______ . A. 1,900 B. 2,200 C. 2,900 *** D. 900 E. [None of the above] 38. In the market for loanable funds, an increase in the government budget deficit, leads to an increase in the cost of borrowing and a decrease in private investment. This phenomenon is best described by the term A. “substitution bias”. B. “catch‐up effect”. C. “monetar...
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- Fall '08
- d., B., c.