TOPIC 5: Financial System

Question 1

Which of the following equations is correct?

Answer 1

I = S + T-G + M-X

Question 2

Brexit Ltd has £921 in its deposit account, £230 in cash, and has borrowed £882 from its bank.

What is the net worth of Brexit Ltd?

Answer 2

£269

Question 3

Financial capital comes from

Saving of households and firms

Borrowing from the rest of the world

Government saving

All of the above

Answer 3

Borrowing from rest of the world

Question 4

How many of the following statements are correct?

A firm’s net worth is negative if its liabilities exceed its assets

Net Worth + Assets = Liabilities

A firm’s net worth is negative if its assets exceed its liabilities

A firm with negative net worth is insolvent

Answer 4

A firm’s net worth is negative if its liabilities exceed its assets

Question 5

In the simple Keynesian consumption function C = 105 +0.94*Y^d, what is the marginal propensity to consume (MPC) equal to?

Answer 5

MPC = 0.94