Question 1

A government budget deficit ________ the demand for loanable funds and ________ investment.

Accepted Answer

A) increases;increases 
B) increases;decreases 
C) decreases;increases 
D) decreases;decreases 
E) increases;rises or falls depending on the change in the supply of loanable funds 
A) increases;increases 
B) increases;decreases 
C) decreases;increases 
D) decreases;decreases 
E) increases;rises or falls depending on the change in the supply of loanable funds B

Question 2

All of the following are sources of loanable funds EXCEPT

Accepted Answer

A) business investment. 
B) private saving. 
C) government budget surplus. 
D) international borrowing. 
E) none of the above. 
A) business investment. 
B) private saving. 
C) government budget surplus. 
D) international borrowing. 
E) none of the above. A

Question 3

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the ________ demand and the supply of loanable funds is determined by the ________ supply.

Accepted Answer

A) country's;world's 
B) country's;country's 
C) world's;country's 
D) world's;world's 
E) world's;World Bank's 
A) country's;world's 
B) country's;country's 
C) world's;country's 
D) world's;world's 
E) world's;World Bank's A

Question 4

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year.At the end of the year,the firm had a capital stock of $20 million.Thus its

Accepted Answer

A) net investment was some amount but we need more information to determine the amount. 
B) net investment was $4 million for the year. 
C) gross investment was zero. 
D) net investment was -$4 million for the year. 
E) depreciation was $4 million. 
A) net investment was some amount but we need more information to determine the amount. 
B) net investment was $4 million for the year. 
C) gross investment was zero. 
D) net investment was -$4 million for the year. 
E) depreciation was $4 million.

Question 5

Choose the statement that is incorrect.

Accepted Answer

A) A financial institution can be solvent but illiquid. 
B) A firm is illiquid if it has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is has borrowed than its available cash. 
C) Insolvency and illiquidity were at the core of a global financial meltdown in 2007-2008. 
D) A financial institution's net worth is the market value of what it has lent minus the market value of what it has borrowed. 
E) All of the above are true. 
A) A financial institution can be solvent but illiquid. 
B) A firm is illiquid if it has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is has borrowed than its available cash. 
C) Insolvency and illiquidity were at the core of a global financial meltdown in 2007-2008. 
D) A financial institution's net worth is the market value of what it has lent minus the market value of what it has borrowed. 
E) All of the above are true.

Question 6

In the market for loanable funds,a larger government surplus leads to

Accepted Answer

A) a higher real interest rate, and increased investment. 
B) a higher real interest rate, and decreased investment. 
C) a lower real interest rate, and increased investment. 
D) a lower real interest rate, and decreased investment. 
E) no effect on the real interest rate or investment. 
A) a higher real interest rate, and increased investment. 
B) a higher real interest rate, and decreased investment. 
C) a lower real interest rate, and increased investment. 
D) a lower real interest rate, and decreased investment. 
E) no effect on the real interest rate or investment.

Question 7

A decrease in the real interest rate leads to a ________ the demand for loanable funds curve,and a decrease in expected profit leads to a ________ the demand for loanable funds curve.

Accepted Answer

A) rightward shift of;leftward shift of 
B) movement down along;movement up along 
C) rightward shift of;movement up along 
D) movement down along;leftward shift of 
E) movement down along;rightward shift of 
A) rightward shift of;leftward shift of 
B) movement down along;movement up along 
C) rightward shift of;movement up along 
D) movement down along;leftward shift of 
E) movement down along;rightward shift of

Question 8

Crowding out leads to all of the following EXCEPT

Accepted Answer

A) a higher real interest rate. 
B) a decrease in investment. 
C) a smaller quantity of capital in the future. 
D) a decrease in private saving. 
E) crowding out leads to all of the above. 
A) a higher real interest rate. 
B) a decrease in investment. 
C) a smaller quantity of capital in the future. 
D) a decrease in private saving. 
E) crowding out leads to all of the above.

Question 9

Technological progress that increases expected profit shifts the demand for loanable funds curve

Accepted Answer

A) leftward and decreases the real interest rate. 
B) rightward and increases the real interest rate. 
C) rightward and decreases the real interest rate. 
D) leftward and increases the real interest rate. 
E) rightward and the supply of loanable funds curve leftward. 
A) leftward and decreases the real interest rate. 
B) rightward and increases the real interest rate. 
C) rightward and decreases the real interest rate. 
D) leftward and increases the real interest rate. 
E) rightward and the supply of loanable funds curve leftward.

Question 10

At the beginning of the year,Tom's Tubes had a capital stock of 5 tube-inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's gross investment for the year totaled

Accepted Answer

A) 1 machine. 
B) 2 machines. 
C) 3 machines. 
D) 6 machines. 
E) 8 machines. 
A) 1 machine. 
B) 2 machines. 
C) 3 machines. 
D) 6 machines. 
E) 8 machines.

Question 11

Use the table below to answer the following question.
Table 23.3.1
Data from Northland
  
-Refer to Table 23.3.1.Table 23.3.1 shows the market for loanable funds in Northland.The government budget is balanced.If the government moves from a balanced budget to a surplus of $20 billion,the new equilibrium has a real interest rate of ________ percent and quantity of loanable funds traded equal to ________.

Accepted Answer

A) 6.5;$110 billion 
B) 6.5;$90 billion 
C) 5.5;$90 billion 
D) 5.5;$110 billion 
E) 6;$120 billion 
A) 6.5;$110 billion 
B) 6.5;$90 billion 
C) 5.5;$90 billion 
D) 5.5;$110 billion 
E) 6;$120 billion

Question 12

According to the Ricardo-Barro effect,

Accepted Answer

A) the government budget has no effect on the real interest rate. 
B) a government budget deficit crowds out private investment. 
C) financing government spending with taxes has a less severe effect on private investment than financing through government borrowing. 
D) All of the above. 
E) None of the above. 
A) the government budget has no effect on the real interest rate. 
B) a government budget deficit crowds out private investment. 
C) financing government spending with taxes has a less severe effect on private investment than financing through government borrowing. 
D) All of the above. 
E) None of the above.

Question 13

During a recession,firms decrease their profit expectations.As a result,there is a ________ shift of the ________ loanable funds curve.

Accepted Answer

A) rightward;supply of 
B) leftward;demand for 
C) rightward;demand for 
D) rightward, supply of 
E) leftward;demand for loanable funds curve and supply of 
A) rightward;supply of 
B) leftward;demand for 
C) rightward;demand for 
D) rightward, supply of 
E) leftward;demand for loanable funds curve and supply of

Question 14

If a bank's net worth is negative,then the bank is

Accepted Answer

A) liquid. 
B) insolvent. 
C) illiquid. 
D) solvent. 
E) none of the above. 
A) liquid. 
B) insolvent. 
C) illiquid. 
D) solvent. 
E) none of the above.

Question 15

A firm's decision to invest in a project is based on the

Accepted Answer

A) real interest rate and expected total revenue. 
B) nominal interest rate and expected total revenue. 
C) nominal interest rate and the expected profit. 
D) real interest rate and the expected profit. 
E) expected future income, wealth, and default risk. 
A) real interest rate and expected total revenue. 
B) nominal interest rate and expected total revenue. 
C) nominal interest rate and the expected profit. 
D) real interest rate and the expected profit. 
E) expected future income, wealth, and default risk.

Question 16

Which of the following is FALSE about saving?

Accepted Answer

A) Saving adds to wealth. 
B) Income left after paying taxes can either be consumed or saved. 
C) Saving equals wealth minus consumption expenditure. 
D) Saving is the source of funds used to finance investment. 
E) Saving supplies funds in loan markets, bond markets, and stock markets. 
A) Saving adds to wealth. 
B) Income left after paying taxes can either be consumed or saved. 
C) Saving equals wealth minus consumption expenditure. 
D) Saving is the source of funds used to finance investment. 
E) Saving supplies funds in loan markets, bond markets, and stock markets.

Question 17

Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent.Which of the following statements is correct?

Accepted Answer

A) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. 
B) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent. 
C) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. 
D) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent. 
E) The real interest rate is 6 percent and the nominal interest rate is -1.5 percent. 
A) The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent. 
B) The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent. 
C) The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent. 
D) The real interest rate is 6 percent and the nominal interest rate is 7.5 percent. 
E) The real interest rate is 6 percent and the nominal interest rate is -1.5 percent.

Question 18

The greater a household's ________ the less is its saving.

Accepted Answer

A) return from saving 
B) wealth 
C) disposable income 
D) expected future profit 
E) all of the above 
A) return from saving 
B) wealth 
C) disposable income 
D) expected future profit 
E) all of the above

Question 19

Refer to the figure below to answer the following questions.
   
Figure 23.2.3
-In Figure 23.2.3,if the real interest rate is constant at 6 percent and and expected profit rises,the amount of loanable funds demanded will be

Accepted Answer

A) less than $450 billion. 
B) $450 billion. 
C) between $300 billion and $450 billion. 
D) greater than $450 billion. 
E) zero. 
A) less than $450 billion. 
B) $450 billion. 
C) between $300 billion and $450 billion. 
D) greater than $450 billion. 
E) zero.

Question 20

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign lending ________.

Accepted Answer

A) increases;decreases 
B) does not change;does not change 
C) does not change;increases 
D) increases;does not change 
E) does not change;decreases 
A) increases;decreases 
B) does not change;does not change 
C) does not change;increases 
D) increases;does not change 
E) does not change;decreases

Exam 23: Finance, Saving, and Investment

A government budget deficit ________ the demand for loanable funds and ________ investment.

All of the following are sources of loanable funds EXCEPT

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the ________ demand and the supply of loanable funds is determined by the ________ supply.

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year.At the end of the year,the firm had a capital stock of $20 million.Thus its

Choose the statement that is incorrect.

In the market for loanable funds,a larger government surplus leads to

A decrease in the real interest rate leads to a ________ the demand for loanable funds curve,and a decrease in expected profit leads to a ________ the demand for loanable funds curve.

Crowding out leads to all of the following EXCEPT

Technological progress that increases expected profit shifts the demand for loanable funds curve

At the beginning of the year,Tom's Tubes had a capital stock of 5 tube-inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's gross investment for the year totaled

According to the Ricardo-Barro effect,

During a recession,firms decrease their profit expectations.As a result,there is a ________ shift of the ________ loanable funds curve.

If a bank's net worth is negative,then the bank is

A firm's decision to invest in a project is based on the

Which of the following is FALSE about saving?

Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent.Which of the following statements is correct?

The greater a household's ________ the less is its saving.

Refer to the figure below to answer the following questions. Figure 23.2.3 -In Figure 23.2.3,if the real interest rate is constant at 6 percent and and expected profit rises,the amount of loanable funds demanded will be

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign lending ________.

What Is Economics?

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Government Actions in Markets

Global Markets in Action

Utility and Demand

Possibilities, Preferences, and Choices

Organizing Production

Output and Costs

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Externalities

Public Goods and Common Resources

Markets for Factors of Production

Economic Inequality

Measuring GDP and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: The Keynesian Model

Canadian Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

A government budget deficit the demand for loanable funds and investment.

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the demand and the supply of loanable funds is determined by the supply.

A decrease in the real interest rate leads to a the demand for loanable funds curve,and a decrease in expected profit leads to a the demand for loanable funds curve.

During a recession,firms decrease their profit expectations.As a result,there is a shift of the loanable funds curve.

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country and the country's foreign lending .