Author Question: Is each of the following situations an example of savings, investment, or neither? In each case ... (Read 32 times)

Metfan725 · **on:** Jun 29, 2018

Is each of the following situations an example of savings, investment, or neither? In each case explain your choice.

(a) A savings and loan association lends money for the purchase of junk (not backed) bonds.
(b) John's income is 25,000 per year; 22,000 is spent on consumer goods and the remaining money is used purchase stock in the local electric company.
(c) Just before retirement a couple sells their shares of Pacific Bell stock and puts the proceeds in a bank savings account.
(d) The city of Los Angeles rebuilds highways after an earthquake.
(e) In order to improve the income earning potential of current welfare recipients, the federal government increases the size of income transfers.

Question 2

Refer to Figure 19-3. Which of the following is not true?

A) Thai exports to the United States are more expensive at exchange rates greater than .03/baht than at the equilibrium exchange rate.
B) The baht is overvalued at exchange rates greater than .03/baht.
C) To achieve an exchange rate greater than .03/baht, the Bank of Thailand must buy surplus dollars with bahts.
D) Thai imports from the United States are cheaper at exchange rates greater than .03/baht than at the equilibrium exchange rate.

Alyson.hiatt@yahoo.com · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

(a) This example is neither savings nor investment because it is a financial transaction.
(b) This is an example of savings to John because it is foregone consumption.
(c) This example is neither savings nor investment because it is a financial transaction.
(d) This is an example of social investment because the city is building a product that is useful for future and current residents.
(e) This example is neither savings nor investment because it is a transfer from taxpayers to welfare recipients.

Answer to Question 2

C