Understanding Financial Markets and Investment Impact

1. 25 Finance, Saving, and Investment CLICKER QUESTIONS

2. 26 Finance, Saving, and Investment CLICKER QUESTIONS

3. Checkpoint 26.3 Checkpoint 26.1 Checkpoint 26.2 Question 8 Question 1 Question 4 Question 9 Question 2 Question 5 Question 6 Question 10 Question 3 Question 7

4. CHECKPOINT 26.1 Question 1 Economists use the term “financial markets” to mean the markets in which _______. • firms purchase their physical capital • firms supply their goods and services • households supply their labor services • firms get the funds that they use to buy physical capital • the government borrows to fund any budget surplus

5. CHECKPOINT 26.1 Question 2 If the market value of what a financial institution has lent is less than the market value of it has borrowed, then the financial institution’s net worth is ____ and it is ____. • negative; illiquid but not necessarily insolvent • negative; insolvent but not necessarily illiquid • positive; illiquid and insolvent • negative; illiquid and insolvent • positive; insolvent but not necessarily illiquid

6. CHECKPOINT 26.1 Question 3 When a student uses a credit card to buy an iPod, the student is ________. • borrowing in the bond market • lending in the bond market • lending in the loan market • borrowing in the loan market • lending in the stock market

7. CHECKPOINT 26.2 Question 4 • A fall in the real interest rate ______. • increases the quantity of loanable funds supplied • increases the supply of loanable funds but does not change the demand for loanable funds • decreases the supply of loanable funds but does not change the demand for loanable funds • decreases the quantity of loanable funds supplied • decreases the supply of loanable funds and increases the demand for loanable funds

8. CHECKPOINT 26.2 Question 5 The figure illustrates the effect of an increase in ____. As a result investment ____. • wealth; increases • expected profit; increases • default risk; decreases • expected future income; decreases • disposable income; increases

9. CHECKPOINT 26.2 Question 6 If firms expect their profit to fall, the _____ loanable funds ____ and the real interest rate ____. • demand for; increases; rises • supply of; increases; falls • demand for; decreases; rises • supply of; decreases; falls • demand for; decreases; falls

10. CHECKPOINT 26.2 Question 7 An increase in wealth leads to ____ loanable funds and _______ in investment. • an increase in the supply of; an increase • an increase in the demand for; an increase • a decrease in the supply of; a decrease • a decrease in the demand for; a decrease • a decrease in both the supply of and demand for; no change

11. CHECKPOINT 26.3 Question 8 When the government has a budget surplus, _____. • private saving and investment are equal • private saving exceeds investment by an amount equal to the government surplus • investment exceeds private saving by an amount equal to the government surplus • private saving minus the government surplus equals investment • private saving exceeds investment and government saving is negative.

12. CHECKPOINT 26.3 Question 9 The “crowding-out effect” refers to how a government budget deficit ______. • raises the real interest rate and decreases the supply of loanable funds • lowers the real interest rate and increases the demand for loanable funds • raises the real interest rate and decreases saving • raises the real interest rate and decreases investment • lowers the real interest rate and increases investment

13. CHECKPOINT 26.3 Question 10 The Ricardo-Barro effect says that a government budget deficit leads to ________. • increased investment and a higher real interest rate • increased saving and a lower real interest rate • increased saving and no change in the real interest rate • an increase in demand for loanable funds and a higher real interest rate • a fall in the real interest rate and an increase in the investment