Question

The "headline" unemployment rate (U-3) does not include which of the following

		discouraged workers
		other marginally attached workers
		those working part-time for economic reasons
		all of the above

The demand for loanable funds is negatively related to the real interest rate because

		higher real interest rates generate more saving
		higher real interest rates raise the cost of capital
		higher real interest rates are caused by monetary policy
		higher real interest rates lower the cost of capital

QUESTION 37

1. For a closed economy, GDP is $11 trillion, consumption is $7 trillion, taxes are $2.5 trillion and the government runs a surplus of $1 trillion. What are private saving and national saving?

   	a.	$2.5 trillion and $1.5 trillion, respectively
   	b.	$2.5 trillion and $2.5 trillion, respectively
   	c.	$1.5 trillion and $2.5 trillion, respectively
   	d.	$1.5 trillion and $1.5 trillion, respectively

Since the Great Recession, real interest rates have been at historically low levels. Which of the following is NOT a possible reason for the low rates?

		baby boomers are a large share of the population and are at the life stage when their savings is high
		higher income inequality creates more saving because more wealthy households save more
		low productivity growth has lowered demand for investmentf
		increased internet access has created better information for consumers

Answer 1

All of the above. Official unemployment data considers discouraged workers, part time workers and marginally attached workers not a part of labor force so they are not considered unemployed

Higher real interest rate raises the cost of capital. Note that cost of acquiring capital is the rate of interest applicable on the amount acquired. If the rate of interest is increased, funds demanded for capital decrease.

C) $1.5 trillion and $2.5 trillion, respectively. Public saving = Budget surplus = 1 trillion. Private saving = GDP - taxes - consumption = 11 - 2.5 - 7 = 1.5 trillion. Hence national saving = 2.5 trillion

increased internet access has created better information for consumers. This is because option 1 and option 2 will shift supply curve of loanable funds to the right, reducing the rate of interest and option 3 will shift the demand curve to the left again lowering the rate of interest. But option 4 has nothing to do with savings / demand