Chapter 7: Savings and Investment Process
Multiple Choice
1. ______________ is a nation’s output of goods and services achieved over a specified period
of time, such as one year.
a. Net exports of goods and services
b. GDP
c. Government expenditures including gross investment
d. PCE
Answer: b
Level: easy
Section: Gross Domestic Product and Capital Formation
2. What is the term used to denote expenditures for goods and services plus gross investments by
federal, state, and local governments?
a. gross private domestic investment
b. government expenditures
c. personal consumption expenditures
d. net exports
Answer: b
Level: medium
Section: Gross Domestic Product and Capital Formation
3. The federal government relies primarily on tax revenues to support its various expenditure
programs. The examples of these revenues include all of the following except ____________.
a. outlays for national defense.
b. rental receipts from federal housing projects.
c. postal receipts.
d. food and housing payments collected from some government employees.
Answer: a
Level: medium
Section: Federal Government Receipts and Expenditures
4. Federal statutory debt limits ______________________________.
a. have created a vast increase in the total federal debt.
b. are set by Congress and have been raised numerous times in recent years.
c. occur when ongoing deficits are being controlled by the federal government.
d. occur when expenditures are greater than revenues.
Answer: b
Level: difficult
Section: Federal Government Receipts and Expenditures
5. Which of the following changes would tend to increase GDP?
a. decrease in Gross Private Domestic Investment
b. decrease in government expenditures
c. decrease in imports
d. decrease in exports
Answer: d
Level: difficult
Section: Gross Domestic Product and Capital Formation
6. _____________________ occurs when all of an economic unit’s income is not consumed and
is represented by the accumulation of cash and other financial assets.
a. Internal investment opportunities
b. Promotable growth
c. Savings
d. Residual dividends
Answer: c
Level: difficult
Section: Historical Role and Creation of Savings
7. ___________________ are the savings that an individual accumulates that is equal to the
personal income less personal current taxes and less personal outlays.
a. Secure reserves
b. Personal savings
c. Voluntary savings
d. Contractual savings
Answer: b
Level: easy
Section: Major Sources of Savings
8. Capital consumption adjustment is also known by what term?
a. inventory valuation adjustment
b. depreciation
c. estimates
d. corporate operating adjustments
Answer: b
Level: medium
Section: Major Sources of Savings
9. Which of the following groups has been the most reliable source of savings in the U.S.
economy in recent years?
a. U.S. government
b. Corporations
c. Financial institutions
d. Households
Answer: d
Level: medium
Section: Major Sources of Savings
10. Which of these is not a stage of a successful individual life cycle?
a. formative or education developing
b. investment valuation
c. career starting or family creating
d. wealth building
Answer: b
Level: difficulty
Section: Factors Affecting Savings
11. ______________________ are debt securities with maturities longer than one year and
corporate stocks.
a. Capital market securities
b. Money market securities
c. Treasury bond securities
d. Municipal bond securities
Answer: a
Level: medium
Section: Capital Market Securities
12. What is the common term for a debt instrument issued by a corporation to raise long term
funds?
a. preferred stock
b. corporate bond
c. common stock
d. treasury bond
Answer: b
Level: medium
Section: Capital Market Securities
13. The “internet” bubble of the 1990s occurred because of _______________________.
a. the surge of internet businesses founded in the 1990s.
b. the economic growth in the 1990s that left the U.S. awash with vast amounts of unused
financial capital.
c. the stock prices that rose out of proportion from the ability of firms to generate earnings or
cash flows.
d. the economic growth of the 1990s which encouraged the Federal Reserve System to lower
interest rates to try to stimulate spending and borrowing.
Answer: c
Level: difficult
Section: A Further Look at the 2007-09 Crisis
14. The U.S. savings rate was above ______ from the late 1950s through the mid 1980s.
a. 8 percent
b. 12 percent
c. 5 percent
d. 22 percent
Answer: a
Level: easy
Section: A Further Look at the 2007-09 Crisis
15. During the Economic Crisis of 2007 and 2008, individuals were ultimately responsible for
______________ and as a result, individuals defaulted on their loans.
a. investing heavily in the internet bubble.
b. using alternative mortgage loan instruments.
c. entering into very risky home mortgages.
d. believing they could spend now and pay off debt later.
Answer: c
Level: difficult
Section: A Further Look at the 2007-09 Crisis