Question 1

From 1970 through 1997, the domestic government sector was

Accepted Answer

A) a net borrower. 
B) a net lender. 
C) neither a borrower nor a lender. 
D) a major factor in keeping real interest rates low. 
A) a net borrower. 
B) a net lender. 
C) neither a borrower nor a lender. 
D) a major factor in keeping real interest rates low.

Question 2

An open economy is one that

Accepted Answer

A) has a large government sector. 
B) lends and borrows in the international capital market. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods. 
A) has a large government sector. 
B) lends and borrows in the international capital market. 
C) produces mainly agricultural goods. 
D) produces mainly manufactured goods.

Question 3

If the equilibrium price in the bond market for a one-year discount bond is $9400, then the equilibrium interest rate in the loanable funds market must be

Accepted Answer

A) 4%. 
B) 6%. 
C) 6.4%. 
D) 9.4%. 
A) 4%. 
B) 6%. 
C) 6.4%. 
D) 9.4%.

Question 4

The formula for the yield to maturity, i, on a discount bond is

Accepted Answer

A) i = (Face value - Discount price)/Discount price. 
B) i = (Discount price - Face value)/Discount price. 
C) i = (Face value - Discount price)/Face value. 
D) i = (Discount price - Face value)/Face value. 
A) i = (Face value - Discount price)/Discount price. 
B) i = (Discount price - Face value)/Discount price. 
C) i = (Face value - Discount price)/Face value. 
D) i = (Discount price - Face value)/Face value.

Question 5

The supply curve for loanable funds would decline due to

Accepted Answer

A) an increase in wealth. 
B) an increase in the expected return on bonds. 
C) an increase in expected inflation. 
D) a decrease in the riskiness of bonds relative to other assets. 
A) an increase in wealth. 
B) an increase in the expected return on bonds. 
C) an increase in expected inflation. 
D) a decrease in the riskiness of bonds relative to other assets.

Question 6

If there is an excess demand for loanable funds at a given interest rate, then

Accepted Answer

A) the price of bonds will fall. 
B) the price of bonds will rise. 
C) the interest rate will fall. 
D) the price of bonds may rise or fall depending upon the reasons for the excess demand for loanable funds. 
A) the price of bonds will fall. 
B) the price of bonds will rise. 
C) the interest rate will fall. 
D) the price of bonds may rise or fall depending upon the reasons for the excess demand for loanable funds.

Question 7

The increase in German investment in what was formerly East Germany resulted in

Accepted Answer

A) a decline in the world real interest rate. 
B) a shift to the right in the German supply of loanable funds curve. 
C) an increase in the real interest rate in the United States. 
D) a shift to the left in the German demand for loanable funds curve. 
A) a decline in the world real interest rate. 
B) a shift to the right in the German supply of loanable funds curve. 
C) an increase in the real interest rate in the United States. 
D) a shift to the left in the German demand for loanable funds curve.

Question 8

The world real interest rate is

Accepted Answer

A) set annually by a special commission at the United Nations. 
B) set annually by a special commission at the International Monetary Fund. 
C) determined in the international capital market. 
D) determined daily on the New York Stock Exchange. 
A) set annually by a special commission at the United Nations. 
B) set annually by a special commission at the International Monetary Fund. 
C) determined in the international capital market. 
D) determined daily on the New York Stock Exchange.

Question 9

If the expected gains on stocks rise, while the expected returns on bonds do not change, then

Accepted Answer

A) the demand curve for bonds will shift to the left. 
B) the supply curve for loanable funds will shift to the right. 
C) the demand curve for loanable funds will shift to the left. 
D) the equilibrium interest rate will fall. 
A) the demand curve for bonds will shift to the left. 
B) the supply curve for loanable funds will shift to the right. 
C) the demand curve for loanable funds will shift to the left. 
D) the equilibrium interest rate will fall.

Question 10

In the 1980s, 1990s, and early 2000s, the United States

Accepted Answer

A) was essentially a closed economy. 
B) was generally a net borrower of foreign funds. 
C) was generally a net lender abroad. 
D) experienced a net outflow of savings. 
A) was essentially a closed economy. 
B) was generally a net borrower of foreign funds. 
C) was generally a net lender abroad. 
D) experienced a net outflow of savings.

Question 11

A one-year discount bond with a face value of $10,000 that is currently selling for $9400 has an interest rate of

Accepted Answer

A) 3.1%. 
B) 6%. 
C) 6.38%. 
D) 60%. 
A) 3.1%. 
B) 6%. 
C) 6.38%. 
D) 60%.

Question 12

As wealth increases in the economy, savers are willing to

Accepted Answer

A) hold more cash relative to their holdings of bonds. 
B) buy fewer bonds at any given price. 
C) lend more at any given interest rate. 
D) lend less at any given interest rate. 
A) hold more cash relative to their holdings of bonds. 
B) buy fewer bonds at any given price. 
C) lend more at any given interest rate. 
D) lend less at any given interest rate.

Question 13

If a government's income tax receipts exceed its expenditures, the government is running a

Accepted Answer

A) surplus and is a net borrower of funds. 
B) surplus and is a net saver of funds. 
C) deficit and is a net borrower of funds. 
D) deficit and is a net saver of funds. 
A) surplus and is a net borrower of funds. 
B) surplus and is a net saver of funds. 
C) deficit and is a net borrower of funds. 
D) deficit and is a net saver of funds.

Question 14

The demand curve for loanable funds slopes down because

Accepted Answer

A) at lower bond prices more loanable funds will be supplied. 
B) lower interest rates reduce the inflation rate. 
C) an increase in the interest rate makes borrowers more willing and able to demand more funds. 
D) a decrease in the interest rate makes borrowers more willing and able to demand more funds. 
A) at lower bond prices more loanable funds will be supplied. 
B) lower interest rates reduce the inflation rate. 
C) an increase in the interest rate makes borrowers more willing and able to demand more funds. 
D) a decrease in the interest rate makes borrowers more willing and able to demand more funds.

Question 15

In the market for loanable funds, the seller is considered to be

Accepted Answer

A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling. 
A) the lender. 
B) the borrower. 
C) the lender or the borrower depending upon the use to which the funds are put. 
D) the lender or the borrower depending upon whether interest rates are rising or falling.

Question 16

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Accepted Answer

Because Belgium is a small open economy,

Question 17

Which of the following statements concerning the relation among consumption, saving, and income over the life cycle is INCORRECT?

Accepted Answer

A) Individuals who have recently entered the labor force tend to consume more than they earn. 
B) Individuals who are in their peak earning years tend to have positive savings. 
C) Individuals who are retired tend to finance part of their consumption by borrowing. 
D) Most households attempt to even out the amount they consume over their life cycles. 
A) Individuals who have recently entered the labor force tend to consume more than they earn. 
B) Individuals who are in their peak earning years tend to have positive savings. 
C) Individuals who are retired tend to finance part of their consumption by borrowing. 
D) Most households attempt to even out the amount they consume over their life cycles.

Question 18

Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be

Accepted Answer

A) a shift to the right in the demand curve for bonds. 
B) a shift to the left in the supply curve for loanable funds. 
C) an increase in the equilibrium interest rate. 
D) a decrease in the equilibrium interest rate. 
A) a shift to the right in the demand curve for bonds. 
B) a shift to the left in the supply curve for loanable funds. 
C) an increase in the equilibrium interest rate. 
D) a decrease in the equilibrium interest rate.

Question 19

During wars,

Accepted Answer

A) the supply curve for bonds shifts to the right, lowering the equilibrium interest rate. 
B) the demand curve for bonds shifts to the left, lowering the equilibrium interest rate. 
C) the demand curve for loanable funds shifts to the right, raising the equilibrium interest rate. 
D) the supply curve for loanable funds shifts to the right, lowering the equilibrium interest rate. 
A) the supply curve for bonds shifts to the right, lowering the equilibrium interest rate. 
B) the demand curve for bonds shifts to the left, lowering the equilibrium interest rate. 
C) the demand curve for loanable funds shifts to the right, raising the equilibrium interest rate. 
D) the supply curve for loanable funds shifts to the right, lowering the equilibrium interest rate.

Question 20

The bond supply curve

Accepted Answer

A) shows the quantity of bonds lenders are willing to supply as bond prices change. 
B) shows the quantity of bonds lenders are willing to supply as interest rates change. 
C) shows the quantity of bonds borrowers are willing to supply as bond prices change. 
D) is represented by a downward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds supplied is on the vertical axis. 
A) shows the quantity of bonds lenders are willing to supply as bond prices change. 
B) shows the quantity of bonds lenders are willing to supply as interest rates change. 
C) shows the quantity of bonds borrowers are willing to supply as bond prices change. 
D) is represented by a downward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds supplied is on the vertical axis.

Exam 6: Determining Market Interest Rates

From 1970 through 1997, the domestic government sector was

An open economy is one that

If the equilibrium price in the bond market for a one-year discount bond is $9400, then the equilibrium interest rate in the loanable funds market must be

The formula for the yield to maturity, i, on a discount bond is

The supply curve for loanable funds would decline due to

If there is an excess demand for loanable funds at a given interest rate, then

The increase in German investment in what was formerly East Germany resulted in

The world real interest rate is

If the expected gains on stocks rise, while the expected returns on bonds do not change, then

In the 1980s, 1990s, and early 2000s, the United States

A one-year discount bond with a face value of $10,000 that is currently selling for $9400 has an interest rate of

As wealth increases in the economy, savers are willing to

If a government's income tax receipts exceed its expenditures, the government is running a

The demand curve for loanable funds slopes down because

In the market for loanable funds, the seller is considered to be

What impact do savings rates in Belgium have on the real interest rate that businesses in Belgium must pay to obtain the funds to finance their spending on plant and equipment?

Which of the following statements concerning the relation among consumption, saving, and income over the life cycle is INCORRECT?

Suppose that a new bond rating service is established that specializes in rating municipal bonds that had not previously been rated. The likely result would be

During wars,

The bond supply curve

Introducing Money and the Financial System

Money and the Payments System

Overview of the Financial System

Interest Rates and Rates of Return

The Theory of Portfolio Allocation

Risk Structure and Term Structure of Interest Rates

The Foreign-Exchange Market and Exchange Rates

Derivative Securities and Derivative Markets

Information and Financial Market Efficiency

Reducing Transactions Costs and Information Costs

What Financial Institutions Do

The Business of Banking

The Banking Industry

Banking Regulation: Crisis and Response

Banking in the International Economy

The Money Supply Process

Changes in the Monetary Base

Organization of Central Banks

Monetary Policy Tools

The Conduct of Monetary Policy

The International Financial System and Monetary Policy

The Demand for Money

Linking the Financial System and the Economy: the Is-Lm-Fe Model

Aggregate Demand and Aggregate Supply

Money and Output in the Short Run

Information Problems and Channels for Monetary Policy

Inflation: Causes and Consequences

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