Economics Quiz: Saving, Investment, and Gaps
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Questions and Answers

In a closed economy, which of the following equations accurately reflects the relationship between saving and investment?

  • S = C + I + G
  • S = Y - T - C
  • S = Y - C - G (correct)
  • S = T + G - Y

What is typically the role of a saver in the financial system?

  • To provide funds for loans and investments (correct)
  • To manage public savings
  • To trade stocks and bonds
  • To borrow money for investments

Which of the following statements about bonds is correct?

  • Bonds yield a variable income based on stock performance.
  • Bonds are considered fixed income assets. (correct)
  • Bonds are risk-free investments with guaranteed returns.
  • Bonds represent ownership in a company.

What is the impact of a trade deficit in an economy?

<p>Imports exceed exports. (D)</p> Signup and view all the answers

Which of the following represents the formula for private saving in a closed economy?

<p>S = (Y - T - C) (B)</p> Signup and view all the answers

What describes an inflationary gap in economic terms?

<p>When the actual output exceeds the potential output. (D)</p> Signup and view all the answers

What characterizes a recessionary situation in the economy?

<p>Actual inflation is less than expected inflation. (B)</p> Signup and view all the answers

Which of the following best defines stagflation?

<p>High price levels coupled with slow economic growth. (D)</p> Signup and view all the answers

In terms of economic output, what does a contractionary gap imply?

<p>Actual output falls short of potential output. (B)</p> Signup and view all the answers

What can be a potential cause of stagflation?

<p>Negative supply shocks impacting production. (C)</p> Signup and view all the answers

Flashcards

Actual Inflation < Expected Inflation

The situation where the actual inflation rate is less than what people expected.

Actual Inflation > Expected Inflation

When the actual inflation rate is higher than what people anticipated.

Y > Yp

When the economy produces more output (Y) than its potential output (Yp).

Y < Yp

When the economy produces less output (Y) than its potential output (Yp).

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Stagflation

A situation characterized by high inflation and slow economic growth. Usually, there's also a rise in velocity of money (V).

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Saver

People who allocate their money to assets like stocks or bonds, aiming for future returns.

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Stock

Represents partial ownership of a company, giving the holder a share of its profits and voting rights.

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Bond

A debt security where the issuer borrows money from the holder and promises to repay with interest.

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Trade Deficit

Occurs when a country imports more goods and services than it exports, resulting in a negative balance of trade.

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Saving equals Investment (closed economy)

In a closed economy, where there's no international trade, all savings are automatically invested.

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