Question 1

Approximately, the real interest rate ________ the inflation rate ________ the nominal interest rate.

Accepted Answer

A) plus; equals 
B) equals; plus 
C) equals; minus 
D) minus; equals 
E) times; divided by 100 equals 
A) plus; equals 
B) equals; plus 
C) equals; minus 
D) minus; equals 
E) times; divided by 100 equals

Question 2

Choose the statement that is incorrect about trust and loan companies.

Accepted Answer

A) Trust and loan companies hold more than 70 percent of the total assets of the Canadian financial services sector. 
B) The largest trust and loan companies are owned by banks. 
C) Trust and loan companies accept deposits and make personal loans and mortgage loans. 
D) Trust and loan companies administer estates. 
E) Trust and loan companies administer trusts and pension plans. 
A) Trust and loan companies hold more than 70 percent of the total assets of the Canadian financial services sector. 
B) The largest trust and loan companies are owned by banks. 
C) Trust and loan companies accept deposits and make personal loans and mortgage loans. 
D) Trust and loan companies administer estates. 
E) Trust and loan companies administer trusts and pension plans.

Question 3

Table 23.3.3
  
-Refer to Table 23.3.3. The table shows the demand for loanable funds schedule and the private supply of loanable funds schedule when the government's budget is balanced. If the Ricardo-Barro effect occurs, and if the government budget deficit is $2.0 trillion, the real interest rate is ________ percent a year and the quantity of investment is ________ trillion.

Accepted Answer

A) 5.0; $5.0 
B) 9.0; $7.0 
C) 3.0; $7.5 
D) 5.0; $7.0 
E) 7.0; $6.0 
A) 5.0; $5.0 
B) 9.0; $7.0 
C) 3.0; $7.5 
D) 5.0; $7.0 
E) 7.0; $6.0

Question 4

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) If a financial institution's net worth is negative, the institution is solvent. 
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) If a financial institution's net worth is negative, the institution is solvent.

Question 5

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 6

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 7

Refer to the figure below to answer the following questions.
   
Figure 23.2.5
-Refer to Figure 23.2.5. In Figure 23.2.5, the supply of loanable funds curve is SLF₀ and the demand for loanable funds curve is DLF₀. An expansion that increases disposable income and expected profit

Accepted Answer

A) shifts the supply of loanable funds curve rightward to curve SLF₁ and does not shift the demand for loanable funds curve. 
B) shifts the supply of loanable funds curve rightward to curve SLF₁, and shifts the demand for loanable funds curve rightward to curve DLF₁. 
C) shifts the demand for loanable funds curve rightward to curve DLF₁ and does not shift the supply of loanable funds curve. 
D) has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. 
E) increases the inflation rate. 
A) shifts the supply of loanable funds curve rightward to curve SLF₁ and does not shift the demand for loanable funds curve. 
B) shifts the supply of loanable funds curve rightward to curve SLF₁, and shifts the demand for loanable funds curve rightward to curve DLF₁. 
C) shifts the demand for loanable funds curve rightward to curve DLF₁ and does not shift the supply of loanable funds curve. 
D) has no effect on either the demand for loanable funds curve or the supply of loanable funds curve. 
E) increases the inflation rate.

Question 8

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 9

If the real interest rate rises from 3 percent to 5 percent,

Accepted Answer

A) the nominal interest rate falls. 
B) the demand for loanable funds curve shifts rightward. 
C) there is a movement up along the demand for loanable funds curve. 
D) the supply of loanable funds curve shifts rightward. 
E) there is a movement down along the supply of loanable funds curve. 
A) the nominal interest rate falls. 
B) the demand for loanable funds curve shifts rightward. 
C) there is a movement up along the demand for loanable funds curve. 
D) the supply of loanable funds curve shifts rightward. 
E) there is a movement down along the supply of loanable funds curve.

Question 10

Use the table below to answer the following questions.
Table 23.3.6
The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule when the government's budget is balanced.
  
-Consider Table 23.3.6. If the Ricardo-Barro effect occurs, and if the government's budget becomes a deficit of $2.0 trillion, what is the quantity of investment?

Accepted Answer

A) $6.5 trillion 
B) $6.0 trillion 
C) $5.5 trillion 
D) $5.0 trillion 
E) $10 trillion 
A) $6.5 trillion 
B) $6.0 trillion 
C) $5.5 trillion 
D) $5.0 trillion 
E) $10 trillion

Question 11

The equilibrium real interest rate is determined by the

Accepted Answer

A) demand for loanable funds curve and the supply of loanable funds curve. 
B) demand for loanable funds curve and real GDP. 
C) supply of loanable funds curve and financial institutions. 
D) government expenditure curve and the taxation curve. 
E) banks and insurance companies. 
A) demand for loanable funds curve and the supply of loanable funds curve. 
B) demand for loanable funds curve and real GDP. 
C) supply of loanable funds curve and financial institutions. 
D) government expenditure curve and the taxation curve. 
E) banks and insurance companies.

Question 12

According to the Ricardo-Barro effect,

Accepted Answer

A) government deficits raise the real interest rate. 
B) taxpayers fail to foresee that government deficits imply higher future taxes. 
C) households increase personal saving when governments run budget deficits. 
D) government budget deficits increase households' expected future disposable income. 
E) a government deficit decreases the supply of loanable funds. 
A) government deficits raise the real interest rate. 
B) taxpayers fail to foresee that government deficits imply higher future taxes. 
C) households increase personal saving when governments run budget deficits. 
D) government budget deficits increase households' expected future disposable income. 
E) a government deficit decreases the supply of loanable funds.

Question 13

When government saving is negative,

Accepted Answer

A) the real interest rate rises. 
B) the real interest rate falls. 
C) investment increases. 
D) the real interest rate falls if crowding-out occurs. 
E) the supply of loanable funds increases. 
A) the real interest rate rises. 
B) the real interest rate falls. 
C) investment increases. 
D) the real interest rate falls if crowding-out occurs. 
E) the supply of loanable funds increases.

Question 14

Use the table below to answer the following questions.
Table 23.2.2
The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule.
  
-Consider Table 23.2.2. What is the equilibrium quantity of investment?

Accepted Answer

A) $6.5 trillion 
B) $6.0 trillion 
C) $5.5 trillion 
D) $5.0 trillion 
E) $4.5 trillion 
A) $6.5 trillion 
B) $6.0 trillion 
C) $5.5 trillion 
D) $5.0 trillion 
E) $4.5 trillion

Question 15

If the economy's capital increases over time,

Accepted Answer

A) net investment is positive. 
B) depreciation is less than zero. 
C) depreciation exceeds gross investment. 
D) gross investment equals depreciation. 
E) gross investment is zero. 
A) net investment is positive. 
B) depreciation is less than zero. 
C) depreciation exceeds gross investment. 
D) gross investment equals depreciation. 
E) gross investment is zero.

Question 16

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 17

A decrease in the demand for loanable funds occurs when

Accepted Answer

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

Question 18

A rise in the real interest rate

Accepted Answer

A) shifts the demand for loanable funds curve rightward. 
B) shifts the demand for loanable funds curve leftward. 
C) creates a movement up along the demand for loanable funds curve. 
D) creates a movement down along the demand for loanable funds curve. 
E) increases the inflation rate. 
A) shifts the demand for loanable funds curve rightward. 
B) shifts the demand for loanable funds curve leftward. 
C) creates a movement up along the demand for loanable funds curve. 
D) creates a movement down along the demand for loanable funds curve. 
E) increases the inflation rate.

Question 19

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 supply of loanable funds curve shifts leftward. 
B) borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve shifts rightward. 
C) a shortage of of loanable funds exists, and the real interest rate rises. 
D) borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve shifts leftward. 
E) lenders will be unable to find borrowers willing to borrow all of the available funds and the supply of loanable funds curve shifts rightward. 
A) lenders will be unable to find borrowers willing to borrow all of the available funds and the supply of loanable funds curve shifts leftward. 
B) borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve shifts rightward. 
C) a shortage of of loanable funds exists, and the real interest rate rises. 
D) borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve shifts leftward. 
E) lenders will be unable to find borrowers willing to borrow all of the available funds and the supply of loanable funds curve shifts rightward.

Question 20

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Choose the correct statement.

Accepted Answer

A) The supply of loanable funds increases. 
B) There is a surplus of loanable funds. 
C) There is a shortage of loanable funds. 
D) There is neither a shortage nor surplus of loanable funds. 
E) The demand for loanable funds decreases. 
A) The supply of loanable funds increases. 
B) There is a surplus of loanable funds. 
C) There is a shortage of loanable funds. 
D) There is neither a shortage nor surplus of loanable funds. 
E) The demand for loanable funds decreases.

Exam 23: Finance, Saving, and Investment

Approximately, the real interest rate ________ the inflation rate ________ the nominal interest rate.

Choose the statement that is incorrect about trust and loan companies.

Choose the statement that is incorrect.

According to the Ricardo-Barro effect, government deficits

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

Refer to the figure below to answer the following questions. Figure 23.2.5 -Refer to Figure 23.2.5. In Figure 23.2.5, the supply of loanable funds curve is SLF₀ and the demand for loanable funds curve is DLF₀. An expansion that increases disposable income and expected profit

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

If the real interest rate rises from 3 percent to 5 percent,

The equilibrium real interest rate is determined by the

According to the Ricardo-Barro effect,

When government saving is negative,

Use the table below to answer the following questions. Table 23.2.2 The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule. -Consider Table 23.2.2. What is the equilibrium quantity of investment?

If the economy's capital increases over time,

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

A decrease in the demand for loanable funds occurs when

A rise in the real interest rate

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

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Choose the correct statement.

What Is Economics

The Economic Problem

Demand and Supply

Elasticity

Efficiency and Equity

Governments 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 Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

Macro Only: International Trade Policy

Filters

Approximately, the real interest rate the inflation rate the nominal interest rate.