hinsafdar

The relationship between savings (S), investment (I), government spending (G), government tax revenue (T), exports (X), and imports (I) is:

A) (G − T) = (S − I) + (X − M).

B) (S − I) = (G − T) + (X − M).

C) (X − M) = (S − I) + (G − T).

---

The fundamental relationship of saving to investment, the fiscal balance, and the trade balance is S = I + (G − T) + (X − M), or (S − I) = (G − T) + (X − M). This relationship can be solved for the fiscal balance, (G − T) = (S − I) − (X − M), or for the trade balance, (X − M) = (S − I) − (G − T).

hinsafdar

If the government is running a budget deficit, which of the following relationships are least likely to occur in the economy at the same time?

Exports relative to imports

Savings relative to investment

A) exports > imports private savings < private investment

B) exports < imports private savings < private investment

C) exports < imports private savings > private investment

---

A government budget deficit, a trade surplus, and an excess of private investment over private savings cannot all occur at the same time. If the government runs a budget deficit, the deficit must be financed by a trade deficit (exports < imports), surplus private savings (private savings > private investment), or both.

hinsafdar

Total investment is one of the components of a country’s GDP. Which of the following is least likely to be considered a source of funds for investment?

A) Household expenditures.

B) National savings.

C) Foreign borrowing.

---

Total investment is one of the major components of GDP (the others are consumption, government spending, and net exports). Investment is defined as expenditures allocated to fixed assets and inventory. The sources of funds for investment are national savings, foreign borrowing, and government savings.

hinsafdar

The difference between personal income and personal disposable income is:

A) fixed expenses.

B) savings.

C) taxes.

---

Personal disposable income equals personal income minus taxes.

hinsafdar

The GDP deflator is the percentage difference between:

A) nominal GDP and real GDP.

B) GDP calculated using the income and expenditure approaches.

C) GDP calculated using the value-of-final-output method and the sum-of-final-output method.

---

The GDP deflator is the percentage difference between nominal GDP and real GDP, reflecting inflation since the base period.

hinsafdar

Which method of calculating gross domestic product requires data from each stage of production of goods?

A) Sum of value added method.

B) Value of final output method.

C) Income method.

---

The sum-of-value-added method of calculating GDP requires data on the value added to goods at each stage of production and distribution. The value-of-final-output method only requires data on the final values of goods and services. The income approach to calculating GDP measures the total income of households and companies, rather than the value of goods and services.