Question 1

Real interest rates around the world tend to

Accepted Answer

A) be quite different because no two countries are exactly the same. 
B) be equal after adjusting for differences in risk because financial capital seeks the highest possible return. 
C) differ because inflation rates differ across countries. 
D) be equal because trading partners would not do business otherwise. 
E) none of the above. 
A) be quite different because no two countries are exactly the same. 
B) be equal after adjusting for differences in risk because financial capital seeks the highest possible return. 
C) differ because inflation rates differ across countries. 
D) be equal because trading partners would not do business otherwise. 
E) none of the above.

Question 2

In Canada's economy,investment is financed by

Accepted Answer

A) C + I + G + X - M. 
B) C + S + T. 
C) S + T + M. 
D) S + (T - G)+ (X - M). 
E) S + (T - G)+ (M - X). 
A) C + I + G + X - M. 
B) C + S + T. 
C) S + T + M. 
D) S + (T - G)+ (X - M). 
E) S + (T - G)+ (M - X).

Question 3

Capital stock increases when

Accepted Answer

A) gross investment exceeds net investment. 
B) net investment exceeds gross investment. 
C) gross investment is negative. 
D) net investment is positive. 
E) net investment is zero. 
A) gross investment exceeds net investment. 
B) net investment exceeds gross investment. 
C) gross investment is negative. 
D) net investment is positive. 
E) net investment is zero.

Question 4

The funds used to buy physical capital are

Accepted Answer

A) net investment. 
B) financial capital. 
C) saving. 
D) wealth. 
E) investment. 
A) net investment. 
B) financial capital. 
C) saving. 
D) wealth. 
E) investment.

Question 5

If the real interest rate is below the equilibrium real interest rate,

Accepted Answer

A) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate falls. 
B) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate rises. 
C) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate rises. 
D) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate falls. 
E) a surplus of loanable funds exists. 
A) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate falls. 
B) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate rises. 
C) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate rises. 
D) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate falls. 
E) a surplus of loanable funds exists.

Question 6

According to the Ricardo-Barro effect,government deficits

Accepted Answer

A) lead to a rise in the equilibrium real interest rate, crowding out investment. 
B) lead to simultaneous increases in private saving and have no effect on the equilibrium real interest rate and investment. 
C) lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
D) lead to a fall in the equilibrium real interest rate and an increase in investment. 
E) raise the real interest rate but have no effect on the nominal interest rate. 
A) lead to a rise in the equilibrium real interest rate, crowding out investment. 
B) lead to simultaneous increases in private saving and have no effect on the equilibrium real interest rate and investment. 
C) lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
D) lead to a fall in the equilibrium real interest rate and an increase in investment. 
E) raise the real interest rate but have no effect on the nominal interest rate.

Question 7

The Ricardo-Barro effect holds that

Accepted Answer

A) equal increases in taxes and government expenditures have no effect on equilibrium real GDP. 
B) a government budget deficit has no effect on the real interest rate. 
C) a government budget deficit crowds out private investment. 
D) a government budget deficit induces a decrease in saving that magnifies the crowding out effect. 
E) none of the above. 
A) equal increases in taxes and government expenditures have no effect on equilibrium real GDP. 
B) a government budget deficit has no effect on the real interest rate. 
C) a government budget deficit crowds out private investment. 
D) a government budget deficit induces a decrease in saving that magnifies the crowding out effect. 
E) none of the above.

Question 8

Households will choose to save more if

Accepted Answer

A) expected future income decreases. 
B) current disposable income increases. 
C) current disposable income decreases. 
D) both A and B are correct. 
E) both A and C are correct. 
A) expected future income decreases. 
B) current disposable income increases. 
C) current disposable income decreases. 
D) both A and B are correct. 
E) both A and C are correct.

Question 9

If the real interest rate is above the equilibrium real interest rate,

Accepted Answer

A) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate falls. 
B) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate rises. 
C) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate rises. 
D) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate falls. 
E) a shortage of loanable funds exists. 
A) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate falls. 
B) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate rises. 
C) lenders are unable to find borrowers willing to borrow all of the available funds and the real interest rate rises. 
D) borrowers are unable to borrow all of the funds they want to borrow and the real interest rate falls. 
E) a shortage of loanable funds exists.

Question 10

The real interest rate is ________ in Canada compared to Zimbabwe because ________.

Accepted Answer

A) lower;there is a lower risk premium in Canada 
B) higher;more firms want to borrow financial capital in Canada than in Zimbabwe 
C) lower;Canada is a net borrower 
D) higher;Zimbabwe is a net borrower 
E) higher;the supply of loanable funds is greater in Canada 
A) lower;there is a lower risk premium in Canada 
B) higher;more firms want to borrow financial capital in Canada than in Zimbabwe 
C) lower;Canada is a net borrower 
D) higher;Zimbabwe is a net borrower 
E) higher;the supply of loanable funds is greater in Canada

Question 11

This year Pizza Hut spent $1.3 billion on new capital in its stores.Depreciation during the year was $300 million.Pizza Hut's gross investment was ________ and its net investment was ________.

Accepted Answer

A) $1.3 billion;$1.6 billion 
B) $1.0 billion;$1.3 billion 
C) $1.3 billion;$1.0 billion 
D) $1.0 billion;$0.7 billion 
E) $1.3 billion;$0.3 billion 
A) $1.3 billion;$1.6 billion 
B) $1.0 billion;$1.3 billion 
C) $1.3 billion;$1.0 billion 
D) $1.0 billion;$0.7 billion 
E) $1.3 billion;$0.3 billion

Question 12

Which of the following will shift the supply of loanable funds curve leftward?

Accepted Answer

A) a decrease in the real interest rate 
B) a decrease in real wealth 
C) a decrease in disposable income 
D) a decrease in expected future income 
E) a decrease in default risk 
A) a decrease in the real interest rate 
B) a decrease in real wealth 
C) a decrease in disposable income 
D) a decrease in expected future income 
E) a decrease in default risk

Question 13

Which of the following is false?

Accepted Answer

A) Y = C + I + G + M - X 
B) I = S + (T - G)+ (M - X) 
C) Y = C + S + T 
D) Y + M = C + I + G + X 
E) Y = C + I + G + X -M 
A) Y = C + I + G + M - X 
B) I = S + (T - G)+ (M - X) 
C) Y = C + S + T 
D) Y + M = C + I + G + X 
E) Y = C + I + G + X -M

Question 14

If national saving equals $100,000,net taxes equal $100,000 and government expenditure equals $25,000,what is private saving?

Accepted Answer

A) $25,000 
B) $225,000 
C) -$25,000 
D) zero 
E) $175,000 
A) $25,000 
B) $225,000 
C) -$25,000 
D) zero 
E) $175,000

Question 15

Table 23.3.5
  
-Refer to Table 23.3.5.The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule when the government's budget is balanced.If the government budget surplus is $2.0 trillion,the real interest rate is ________ percent a year,the quantity of investment is ________ trillion,and the quantity of private saving is ________ trillion.

Accepted Answer

A) 10;$5.5;$7.5 
B) 10;$7.5;$5.5 
C) 8;$6.5;$6.5 
D) 6;$7.5;$7.5 
E) 6;$7.5;$5.5 
A) 10;$5.5;$7.5 
B) 10;$7.5;$5.5 
C) 8;$6.5;$6.5 
D) 6;$7.5;$7.5 
E) 6;$7.5;$5.5

Question 16

Suppose a bond promises to pay its holder $100 a year forever.The interest rate on the bond rises from 4 percent to 5 percent.The price of the bond ________.

Accepted Answer

A) falls from $2,500 to $2,000 
B) falls from $25,000 to $20,000 
C) rises from $2,000 to $2,500 
D) rises from $20,000 to $25,000 
E) does not change.Bond prices are constant. 
A) falls from $2,500 to $2,000 
B) falls from $25,000 to $20,000 
C) rises from $2,000 to $2,500 
D) rises from $20,000 to $25,000 
E) does not change.Bond prices are constant.

Question 17

The total amount spent on new capital is

Accepted Answer

A) wealth. 
B) gross investment. 
C) depreciation. 
D) net investment. 
E) saving. 
A) wealth. 
B) gross investment. 
C) depreciation. 
D) net investment. 
E) saving.

Question 18

A decrease in the demand for loanable funds occurs when

Accepted Answer

A) the real interest rate rises. 
B) the government raises taxes. 
C) the government cuts taxes. 
D) expected profit decreases. 
E) expected profit increases. 
A) the real interest rate rises. 
B) the government raises taxes. 
C) the government cuts taxes. 
D) expected profit decreases. 
E) expected profit increases.

Question 19

If disposable income increases,people ________ saving,the supply of loanable funds will ________ and the real interest rate will ________.

Accepted Answer

A) increase;decrease;rise 
B) decrease;decrease;rise 
C) increase;increase;fall 
D) decrease;increase;fall 
E) increase;increase;rise or fall depending on the shift of the demand curve for loanable funds 
A) increase;decrease;rise 
B) decrease;decrease;rise 
C) increase;increase;fall 
D) decrease;increase;fall 
E) increase;increase;rise or fall depending on the shift of the demand curve for loanable funds

Question 20

The demand for loanable funds curve

Accepted Answer

A) is horizontal. 
B) has a negative slope. 
C) is vertical. 
D) has a positive slope. 
E) slopes downward at high real interest rates and slopes upward at low real interest rates. 
A) is horizontal. 
B) has a negative slope. 
C) is vertical. 
D) has a positive slope. 
E) slopes downward at high real interest rates and slopes upward at low real interest rates.

Exam 23: Finance, Saving, and Investment

Real interest rates around the world tend to

In Canada's economy,investment is financed by

Capital stock increases when

The funds used to buy physical capital are

If the real interest rate is below the equilibrium real interest rate,

According to the Ricardo-Barro effect,government deficits

The Ricardo-Barro effect holds that

Households will choose to save more if

If the real interest rate is above the equilibrium real interest rate,

The real interest rate is ________ in Canada compared to Zimbabwe because ________.

This year Pizza Hut spent $1.3 billion on new capital in its stores.Depreciation during the year was $300 million.Pizza Hut's gross investment was ________ and its net investment was ________.

Which of the following will shift the supply of loanable funds curve leftward?

Which of the following is false?

If national saving equals $100,000,net taxes equal $100,000 and government expenditure equals $25,000,what is private saving?

Suppose a bond promises to pay its holder $100 a year forever.The interest rate on the bond rises from 4 percent to 5 percent.The price of the bond ________.

The total amount spent on new capital is

A decrease in the demand for loanable funds occurs when

If disposable income increases,people ________ saving,the supply of loanable funds will ________ and the real interest rate will ________.

The demand for loanable funds curve

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

The real interest rate is in Canada compared to Zimbabwe because .

This year Pizza Hut spent $1.3 billion on new capital in its stores.Depreciation during the year was $300 million.Pizza Hut's gross investment was and its net investment was .

If disposable income increases,people saving,the supply of loanable funds will and the real interest rate will .