Question 1

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

Accepted Answer

A)  the nominal interest rate falls by 4 percentage points. 
B)  the nominal interest rate is constant. 
C)  the nominal interest rate rises by 4 percentage points. 
D)  the nominal interest rate equals 3 percent. 
A)  the nominal interest rate falls by 4 percentage points. 
B)  the nominal interest rate is constant. 
C)  the nominal interest rate rises by 4 percentage points. 
D)  the nominal interest rate equals 3 percent.

Question 2

The capital stock increases whenever

Accepted Answer

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

Question 3

The quantity of ________ by households will be less ________.

Accepted Answer

A)  saving; the higher is disposable income 
B)  saving; the lower is the real interest rate 
C)  consumption; the lower is the inflation rate 
D)  consumption; the higher is disposable income 
A)  saving; the higher is disposable income 
B)  saving; the lower is the real interest rate 
C)  consumption; the lower is the inflation rate 
D)  consumption; the higher is disposable income

Question 4

________ increases households' saving.

Accepted Answer

A)  A decrease in the real interest rate 
B)  A tax cut that increases disposable income 
C)  Higher expected future income 
D)  A stock market boom that increases the purchasing power of households' wealth 
A)  A decrease in the real interest rate 
B)  A tax cut that increases disposable income 
C)  Higher expected future income 
D)  A stock market boom that increases the purchasing power of households' wealth

Question 5

People expect an inflation rate of 5 percent and the real interest rate is positive. Consequently the nominal interest rate will be

Accepted Answer

A)  more than 5 percent. 
B)  5 percent. 
C)  less than 5 percent. 
D)  Without more information it is impossible to tell if the nominal interest rate will be more than, less than, or equal to 5 percent. 
A)  more than 5 percent. 
B)  5 percent. 
C)  less than 5 percent. 
D)  Without more information it is impossible to tell if the nominal interest rate will be more than, less than, or equal to 5 percent.

Question 6

In 2008, Germany had a budget deficit of 37 billion euros. This deficit resulted in

Accepted Answer

A)  a rightward shift of the supply of loanable funds curve. 
B)  a leftward shift of the demand for loanable funds curve. 
C)  a crowding out effect in which investment decreases. 
D)  the Ricardo-Barro effect and an increase in the interest rate. 
A)  a rightward shift of the supply of loanable funds curve. 
B)  a leftward shift of the demand for loanable funds curve. 
C)  a crowding out effect in which investment decreases. 
D)  the Ricardo-Barro effect and an increase in the interest rate.

Question 7

The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately ________ percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately ________ percent a year.

Accepted Answer

A)  0; 2 
B)  4; 6 
C)  6; 8 
D)  6; 4 
A)  0; 2 
B)  4; 6 
C)  6; 8 
D)  6; 4

Question 8

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

Accepted Answer

A)  0.3 percent. 
B)  8.6 percent. 
C)  6.3 percent. 
D)  9.9 percent. 
A)  0.3 percent. 
B)  8.6 percent. 
C)  6.3 percent. 
D)  9.9 percent.

Question 9

-The economy of Dream Island, which is isolated from the rest of the world, has the supply of loanable funds schedule and the demand for loanable funds schedule shown in the table above. As it happens, all of the supply of loanable funds is from households' saving and the entre demand for loanable funds is from firms' investment demand.
a) Draw the demand and supply curves.
b) What is the equilibrium real interest rate?
c) What is equilibrium investment? Equilibrium saving?
d) Describe the situation in Dream Island's loanable funds market when the real interest rate is 10 percent. Is there a shortage of loanable funds? A surplus of loanable funds?
e) Describe the situation in Dream Island's capital market when the real interest rate is 6 percent. Is there a shortage of loanable funds? A surplus of loanable funds?

Accepted Answer

@#IMG-DLM& a) See the figure above.
b) The equilib

Question 10

If the Ricardo-Barro effect occurs, an ________ in saving finances the government budget deficit and the real interest rate ________.

Accepted Answer

A)  increase; remains the same 
B)  decrease; increases 
C)  increase; falls 
D)  decrease; remains the same 
A)  increase; remains the same 
B)  decrease; increases 
C)  increase; falls 
D)  decrease; remains the same

Question 11

What is the relationship between the real interest rate, the supply of loanable funds and the demand for loanable funds?

Accepted Answer

The supply of loanable funds has a posit

Question 12

In the loanable funds market, the supply comes from

Accepted Answer

A)  saving, the government budget surplus and international borrowing. 
B)  only saving and the government budget surplus. 
C)  only saving. 
D)  only the government budget surplus and international borrowing. 
A)  saving, the government budget surplus and international borrowing. 
B)  only saving and the government budget surplus. 
C)  only saving. 
D)  only the government budget surplus and international borrowing.

Question 13

Investment is financed by which of the following?
I. Government spending
II. National saving
III. Borrowing from the rest of the world

Accepted Answer

A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  II and III only 
A)  I, II, and III 
B)  I and II only 
C)  I and III only 
D)  II and III only

Question 14

If national saving (S) is $100,000, net taxes (T) equal $100,000 and government expenditure (G) is $25,000, how much are households and businesses saving?

Accepted Answer

A)  $25,000 
B)  $225,000 
C)  -$25,000 
D)  none of the above 
A)  $25,000 
B)  $225,000 
C)  -$25,000 
D)  none of the above

Question 15

An increase in disposable income shifts the supply of loanable funds curve

Accepted Answer

A)  leftward and decreases the real interest rate. 
B)  leftward and increases the real interest rate. 
C)  rightward and decreases the real interest rate. 
D)  rightward and increases the real interest rate. 
A)  leftward and decreases the real interest rate. 
B)  leftward and increases the real interest rate. 
C)  rightward and decreases the real interest rate. 
D)  rightward and increases the real interest rate.

Question 16

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

Accepted Answer

A)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. 
B)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. 
C)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise. 
D)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall. 
A)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. 
B)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. 
C)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise. 
D)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall.

Question 17

Which of the following are major influences on the expected profit from an investment?
I. technology advances
II. stock market behavior
III. accounting practices

Accepted Answer

A)  I only 
B)  I and II 
C)  I and III 
D)  II and III 
A)  I only 
B)  I and II 
C)  I and III 
D)  II and III

Question 18

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the interest rate rises?

Accepted Answer

A)  There is a movement to a point such as b on supply of loanable funds curve SLF0. 
B)  The supply of loanable funds curve shifts rightward to a curve such as SLF2. 
C)  The supply of loanable funds curve shifts leftward to a curve such as SLF1. 
D)  none of the above 
A)  There is a movement to a point such as b on supply of loanable funds curve SLF0. 
B)  The supply of loanable funds curve shifts rightward to a curve such as SLF2. 
C)  The supply of loanable funds curve shifts leftward to a curve such as SLF1. 
D)  none of the above

Question 19

The idea that a government budget deficit decreases investment is called

Accepted Answer

A)  government dissaving. 
B)  the crowding-out effect. 
C)  the Ricardo-Barro effect. 
D)  the capital investment effect. 
A)  government dissaving. 
B)  the crowding-out effect. 
C)  the Ricardo-Barro effect. 
D)  the capital investment effect.

Question 20

The key financial institutions in the United States include all of the following EXCEPT

Accepted Answer

A)  the U.S. Treasury. 
B)  the Federal Reserve. 
C)  commercial banks, pension funds, and insurance companies. 
D)  government-sponsored mortgage lenders. 
A)  the U.S. Treasury. 
B)  the Federal Reserve. 
C)  commercial banks, pension funds, and insurance companies. 
D)  government-sponsored mortgage lenders.

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

The capital stock increases whenever

The quantity of by households will be less .

________ increases households' saving.

People expect an inflation rate of 5 percent and the real interest rate is positive. Consequently the nominal interest rate will be

In 2008, Germany had a budget deficit of 37 billion euros. This deficit resulted in

The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately percent a year.

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

If the Ricardo-Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .

What is the relationship between the real interest rate, the supply of loanable funds and the demand for loanable funds?

In the loanable funds market, the supply comes from

Investment is financed by which of the following? I. Government spending II. National saving III. Borrowing from the rest of the world

If national saving (S) is $100,000, net taxes (T) equal $100,000 and government expenditure (G) is $25,000, how much are households and businesses saving?

An increase in disposable income shifts the supply of loanable funds curve

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

Which of the following are major influences on the expected profit from an investment? I. technology advances II. stock market behavior III. accounting practices

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if the interest rate rises?

The idea that a government budget deficit decreases investment is called

The key financial institutions in the United States include all of the following EXCEPT

What Is Economics

The Economic Problem

Demand and Supply

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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 7: Finance, Saving, and Investment

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

The capital stock increases whenever

The quantity of ________ by households will be less ________.

________ increases households' saving.

People expect an inflation rate of 5 percent and the real interest rate is positive. Consequently the nominal interest rate will be

In 2008, Germany had a budget deficit of 37 billion euros. This deficit resulted in

The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately ________ percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately ________ percent a year.

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

If the Ricardo-Barro effect occurs, an ________ in saving finances the government budget deficit and the real interest rate ________.

What is the relationship between the real interest rate, the supply of loanable funds and the demand for loanable funds?

In the loanable funds market, the supply comes from

Investment is financed by which of the following? I. Government spending II. National saving III. Borrowing from the rest of the world

If national saving (S) is $100,000, net taxes (T) equal $100,000 and government expenditure (G) is $25,000, how much are households and businesses saving?

An increase in disposable income shifts the supply of loanable funds curve

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

Which of the following are major influences on the expected profit from an investment? I. technology advances II. stock market behavior III. accounting practices

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the interest rate rises?

The idea that a government budget deficit decreases investment is called

The key financial institutions in the United States include all of the following EXCEPT

What Is Economics

The Economic Problem

Demand and Supply

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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

The quantity of by households will be less .

The real interest rate is 4 percent a year. When the inflation rate is zero, the nominal interest rate is approximately percent a year; and when the inflation rate is 2 percent a year, the nominal interest rate is approximately percent a year.

If the Ricardo-Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if the interest rate rises?