Ch 8 Saving and Wealth

Question 1

Saving

Answer 1

Current income minus spending on current needs

Question 2

Saving Rate

Answer 2

Saving divided by income

Question 3

Wealth

Answer 3

the value of assets minus liabilities

Question 4

Assets

Answer 4

anything of value that one owns

Question 5

Liabilities

Answer 5

the debt one owes

Question 6

Balance Sheet

Answer 6

A list of an economic unit’s assets and liabilities on a specific date

Question 7

Flow

Answer 7

A measure that is defined per unit of time

Question 8

Stock

Answer 8

A measure that is defined at a point in time

Question 9

Capital gains

Answer 9

increases in the value of existing assets

Question 10

Capital losses

Answer 10

Decreases in the value of existing assets

Question 11

EQ: Measurement of National Savings

Answer 11

Y = C + I + G + NX

Question 12

Y stands for

Answer 12

Aggregate income or production

Question 13

C stands for

Answer 13

Consumption Expenditure

Question 14

G stands for

Answer 14

Government Purchases

Question 15

I stands for

Answer 15

Investment Spending

Question 16

NX stands for

Answer 16

Net Exports

Question 17

National Saving

Answer 17

The saving of the entire economy, equal to GDP less consumption expenditures and government purchases of goods and services. The sum of public and private saving

Question 18

EQ: National Saving

Answer 18

S = Y - C - G

Question 19

Transfer Payments

Answer 19

Payments the government makes to the public for which it receives no current goods or services in return

Question 20

Private Saving

Answer 20

The saving of the private sector of the economy is equal to the after-tax income of the private sector minus consumption expenditures (Y - T - C); can be further broken down into household saving and business saving

Question 21

Public Saving

Answer 21

The saving of the government sector is equal to net tax payments minus government purchases (T - G)

Question 22

EQ: Private Saving

Answer 22

S = Y - T - C

Question 23

EQ: Public Saving

Answer 23

S = T - G

Question 24

Government Budget Surplus

Answer 24

The excess of government tax collections over government spending (T - G); the government budget surplus equals public saving

Question 25

Government Budget Deficit

Answer 25

The excess government spending over tax collections (G - T)

Question 26

Life-cycle Saving

Answer 26

Saving to meet long-term objectives such as retirement, college attendance, or the purchase of a home

Question 27

Precautionary Saving

Answer 27

Saving for protection against unexpected setbacks such as the loss of a job or a medical emergency

Question 28

Factors that increase the willingness of government to invest in new capital (5)

Answer 28

1. A decline in the price of new capital goods
2. A decline in the real interest rate
3. Technological improvement, increase in production
4. Lower taxes on the revenues generated by capital
5. A higher relative price for the firms output

Question 29

Crowding Out

Answer 29

The tendency of increased government deficits to reduce investment spending