230 section 5 The Financial Sector
- The federal government is said to be “dissaving” when
a. there is a budget deficit.
b. there is a budget surplus.
c. there is no budget surplus or deficit.
d. savings does not equal investment spending.
e. national savings equals private savings. - A nonprofit institution collects the savings of its members and
invests those funds in a wide variety of assets in order to provide
its members with income after retirement. This describes a
a. mutual fund.
b. bank.
c. savings and loan.
d. pension fund.
e. life insurance company.- A financial intermediary that provides liquid financial assets in
the form of deposits to lenders and uses their funds to finance
the illiquid investment spending needs of borrowers is called a
a. mutual fund.
b. bank.
c. corporation.
d. pension fund.
e. life insurance company.
Tackle the Test: Free-Response Questions
- Identify and describe the three tasks of a well-functioning
financial system.
Answer (6 points)
1 point:Decrease transaction costs
1 point:A well -functioning financial system facilitates investment spending by
allowing companies to borrow large sums of money without incurring large
transaction costs.
1 point:Decrease risk
1 point:A well -functioning financial system helps people reduce their exposure
to risk, so that they are more willing to engage in investment spending in the
face of uncertainty in the economy.
1 point:Provide liquidity
1 point:A well-functioning financial system allows the fast, low-cost
conversion of assets into cash.
- List and describe the four most important types of financial
intermediaries.