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Seminar 3

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Seminar 3

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Hân Đức Nguyễn
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© © All Rights Reserved
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Seminar 3: Question

By Dr. Le Thanh Ha
Type I: True/False question (give a brief explanation)
1. If a country has a higher level of productivity than another, then it also has a higher
level of real GDP.

False, high level of productivity indicates high standard of living, not high GDP
A higher level of productivity in one country does not necessarily mean it will have a
higher level of real GDP compared to another country, as real GDP is influenced by
various factor, includes the size of labor force,…
2. Indonesians, for example, have a lower standard of living than Americans because they
have a lower level of productivity.
True, high level of productivity indicates high standard of living
3. It is possible for a country without a lot of domestic natural resources to have a high
standard of living.
True, high standard of living depends on high productivity, not domestic natural
resources (Janpan).
4. An increase in the saving rate does not permanently increase the growth rate of real GDP
per person.
True, despite the fact that an increase in the saving rate increases the amount of
capital a nation can buy(invest), which increase real gdp per person, there is
diminishing of return, which make the capital investment, at some point, does not
bring as much benefit as it was at a lower level of capital.
5. When economists refer to investment, they mean the purchasing of stocks and bonds and
other types of saving.
False, Investment in macroeconomic means capital goods, which are used to
make more goods and services.
6. When a firm wants to borrow directly from the public to finance the purchase of new
equipment, it does so by selling shares of stock.
False, bond.
7. Other things the same, corporate bonds generally feature higher interest rates than
government bonds.
True, the governments are usually have a higher level of trust in their bond, so
it’s riskier to buy bond from corporations, to compensate these risk, the interest
of corporations is usually higher.
8. When a corporation experiences financial problems, bondholders are paid before
stockholders.
True, bondholders are the creditors of the corporation, and shareholders are the
owners of the corporation, so they (the bondholder) must indirectly take the
money from the stockholders first.
9. Ha uses some of her income to buy mutual fund shares. A macroeconomist refers to Ha's
purchase as investment.
False, Ha purchasing of mutual fund shares is considered as saving in
macroeconomic, and investment is used to counted in capital goods.
10. A decrease in taxes on interest income would increase the interest rate.
False, A decrease in taxes on interest income would make people have the incentive to
save more, which increase the supply for loanble funds. Thus, lower the interest rate.

11. When the government budget deficit rises, national saving is reduced, interest rates rise,
and investment falls.

True, National saving reduced make the supply for loanable funds decrease, shift the
supply curve to the left, which rises the interest rate, the investment fall.(Higher
interest rates discourage businesses and individuals from taking out loans to invest in
capital)
12. The term loanable funds refers to all income that is not used for consumption or
government expenditures. It is the flow of resources available to fund private
investment.
True (definition)

13. An increase in the budget deficit shifts the demand for loanable funds to the right.
False, an increase in the budget deficit does not shift the demand for loanbale funds,
but shift the supply for loanable funds to the left.
Type II: Discussion questions
1.Why is productivity related to the standard of living? In your answer be sure to explain
what productivity and standard of living mean. Make a list of things that determine labor
productivity.
2. The catch-up effect says that countries with low income can grow faster than
countries with higher income. However, in statistical studies that include many
diverse countries we do not observe the catch-up-effect unless we control for other
variables that affect productivity. Considering the determinants of productivity, list
and explain some things that would tend to prohibit or limit a poor country's ability to
catch up with the rich ones.
3. Some data that at first might seem puzzling: The share of GDP devoted to investment
was similar for the United States and South Korea from 1960-1991. However, during these
same years South Korea had a 6 percent growth rate of average annual income per person,
while the United States had only a 2 percent growth rate. If the saving rates were the same,
why were the growth rates so different?
4. What are the basic differences between bonds and stocks?
5. Which of the two bonds in each example would you expect to generally pay the higher
interest rate? Explain why.
a. a U.S. government bond or a Brazilian government bond
b. a U.S. government bond or a municipal bond with the same term and issued by a
creditworthy municipality.
By contrast, when state and local governments issue bonds, called
municipal bonds, the bond owners are not required to pay federal income tax on
the interest income. Because of this tax advantage, bonds issued by state and local
governments typically pay a lower interest rate than bonds issued by corporations
or the federal government

c. a 6-month Treasury bill or a 20-year Treasury bond


d. a Microsoft bond or a bond issued by a new recording company
6. Identify each of the following acts as representing either saving or investment.
a. Fred uses some of his income to buy government bonds.
b. Julie takes some of her income and buys mutual funds.
c. Alex purchases a new truck for his delivery business using borrowed funds.
d. Elaine uses some of her income to buy stock in a major corporation.
e. Henrietta hires a builder to construct a new building for her bicycle shop.
7. Using a graph representing the market for loanable funds, show and explain what
happens to interest rates and investment if the government budget goes from a deficit to a
surplus.

Type III: Multiple Choice


1. Which of the following statements is correct?
a. The level of real GDP is a good gauge of economic prosperity, and the growth of
real GDP is a good gauge of economic progress.
b. The level of real GDP is a good gauge of economic progress, and the growth of
real GDP is a good gauge of economic prosperity.
c. The level of real GDP is a good gauge of economic prosperity, and the level of
real GDP per person is a good gauge of economic progress.
d. The level of real GDP is a good gauge of economic progress, and the level of real
GDP per person is a good gauge of economic prosperity.
2. Which of the following countries had the highest growth rate over the last 100 or so
years?
a. Brazil
b. Germany
c. Canada
d. United States
3. Which of the following does the level of real GDP measure?
a. total real income
b. productivity
c. the standard of living
d. All of the above are correct.
4. In determining living standards, productivity plays a key role
a. for individuals, but not for nations.
b. for nations, but not for individuals.
c. for both nations and individuals.
d. for neither nations nor individuals.
5. The quantity of goods and services produced from each unit of labor input is called
a. standard of living.
b. productivity.
c. capitalized quantity.
d. the knowledge base.
6. When a large, well-known corporation wishes to borrow directly from the public, it can
a. sell bonds.
b. sell shares of stock.
c. go to a bank for a loan.
d. All of the above are correct.
7. Which of the following statements is correct?
a. The expected future profitability of a corporation influences the demand for that
corporation’s stock.
b. When a corporation sells stock as a means of raising funds it is engaging in debt
finance.
c. The owners of bonds sold by the Microsoft Corporation are part owners of that
corporation.
d. All bonds are, by definition, perpetuities.
8. The economy’s two most important financial markets are
a. the investment market and the saving market.
b. the bond market and the stock market.
c. banks and the stock market.
d. financial markets and financial institutions.
9. Two of the economy’s most important financial intermediaries are
a. suppliers of funds and demanders of funds.
b. banks and the bond market.
c. the stock market and the bond market.
d. banks and mutual funds.
10. You observe a closed economy that has a government deficit and positive investment.
Which of the following is correct?
a. Private and public saving are both positive.
b. Private saving is positive; public saving is negative.
c. Private saving is negative; public saving is positive.
d. Both private saving and public saving are negative.
11. According to the definitions of private and public saving, if Y, C, and G remained the
same, an increase in taxes would
a. raise both private and public saving.
b. raise private saving and lower public saving.
c. lower private saving and raise public saving.
d. lower private and public saving.

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