Question 1

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 2

________ 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) An increase in wealth 
E) An increase in default risk 
A) A decrease in the real interest rate 
B) A tax cut that increases disposable income 
C) Higher expected future income 
D) An increase in wealth 
E) An increase in default risk

Question 3

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.

Question 4

The tendency for private saving to increase in response to growing government deficits is known as the

Accepted Answer

A) crowding out effect. 
B) money illusion effect. 
C) Keynes effect. 
D) Ricardo-Barro effect. 
E) Mulroney-Harper effect. 
A) crowding out effect. 
B) money illusion effect. 
C) Keynes effect. 
D) Ricardo-Barro effect. 
E) Mulroney-Harper effect.

Question 5

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 6

Refer to the figure below to answer the following questions.
   
Figure 23.2.2
-Refer to Figure 23.2.2. In Figure 23.2.2, a decrease in the real interest rate will result in a movement from point E to

Accepted Answer

A) point F. 
B) point G. 
C) point H. 
D) point I. 
E) either point G or point F. 
A) point F. 
B) point G. 
C) point H. 
D) point I. 
E) either point G or point F.

Question 7

The key Canadian financial institutions include all of the following except

Accepted Answer

A) commercial banks. 
B) trust and loan companies. 
C) credit unions and caisses populaires. 
D) pension funds. 
E) ATMs. 
A) commercial banks. 
B) trust and loan companies. 
C) credit unions and caisses populaires. 
D) pension funds. 
E) ATMs.

Question 8

If the nominal interest rate is 11 percent and the inflation rate is 9 percent, then the real interest rate is approximately

Accepted Answer

A) 2 percent. 
B) 20 percent. 
C) 4 percent. 
D) 18 percent. 
E) -2 percent. 
A) 2 percent. 
B) 20 percent. 
C) 4 percent. 
D) 18 percent. 
E) -2 percent.

Question 9

Use the table below to answer the following questions.
Table 23.3.7
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 23.3.7. If the government's budget becomes a deficit of $1.0 trillion, what is the quantity of investment?

Accepted Answer

A) $8.0 trillion 
B) $7.5 trillion 
C) $8.5 trillion 
D) $7.0 trillion 
E) $6.5 trillion 
A) $8.0 trillion 
B) $7.5 trillion 
C) $8.5 trillion 
D) $7.0 trillion 
E) $6.5 trillion

Question 10

Suppose that you took out a $1,000 loan in January and were required 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 11

Refer to the figure below to answer the following questions.
   
Figure 23.2.3
-Refer to Figure 23.2.3. In Figure 23.2.3, if the real interest rate is 6 percent, the quantity of loanable funds demanded is

Accepted Answer

A) $150 billion. 
B) $300 billion. 
C) $450 billion. 
D) $600 billion. 
E) any amount less than $450 billion. 
A) $150 billion. 
B) $300 billion. 
C) $450 billion. 
D) $600 billion. 
E) any amount less than $450 billion.

Question 12

Use the table below to answer the following questions.
Table 23.2.3
The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule.
  
-Consider Table 23.2.3. If planned saving decreases by $1.0 trillion at each real interest rate, what is the new equilibrium real interest rate?

Accepted Answer

A) 2 percent a year 
B) 5 percent a year 
C) 2.5 percent a year 
D) 3.5 percent a year 
E) There is no new equilibrium real interest rate. 
A) 2 percent a year 
B) 5 percent a year 
C) 2.5 percent a year 
D) 3.5 percent a year 
E) There is no new equilibrium real interest rate.

Question 13

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

Accepted Answer

A) 1 machine. 
B) 2 machines. 
C) 3 machines. 
D) 6 machines. 
E) 5 machines 
A) 1 machine. 
B) 2 machines. 
C) 3 machines. 
D) 6 machines. 
E) 5 machines

Question 14

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 real interest rate?

Accepted Answer

A) 4 percent a year 
B) 5 percent a year 
C) 6 percent a year 
D) 6.5 percent a year 
E) 7 percent a year 
A) 4 percent a year 
B) 5 percent a year 
C) 6 percent a year 
D) 6.5 percent a year 
E) 7 percent a year

Question 15

In the market for loanable funds, as the real interest rate rises, the ________ and the ________.

Accepted Answer

A) quantity of loanable funds supplied increases; quantity of loanable funds demanded decreases 
B) quantity of loanable funds supplied decreases; quantity of loanable funds demanded increases 
C) supply of loanable funds increases; demand for loanable funds decreases 
D) supply of loanable funds decreases; demand for loanable funds increases 
E) quantity of loanable funds supplied increases; supply of loanable funds increases 
A) quantity of loanable funds supplied increases; quantity of loanable funds demanded decreases 
B) quantity of loanable funds supplied decreases; quantity of loanable funds demanded increases 
C) supply of loanable funds increases; demand for loanable funds decreases 
D) supply of loanable funds decreases; demand for loanable funds increases 
E) quantity of loanable funds supplied increases; supply of loanable funds increases

Question 16

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 17

Suppose Canada spends more on foreign goods and services than foreigners spend on our goods and services. Then

Accepted Answer

A) Canada must borrow an amount equal to national saving. 
B) Canada must borrow an amount equal to imports minus exports. 
C) the rest of the world may or may not finance Canada's trade deficit. 
D) Canada must borrow an amount equal to consumption expenditure plus investment. 
E) the Bank of Canada will raise the foreign exchange rate of the Canadian dollar. 
A) Canada must borrow an amount equal to national saving. 
B) Canada must borrow an amount equal to imports minus exports. 
C) the rest of the world may or may not finance Canada's trade deficit. 
D) Canada must borrow an amount equal to consumption expenditure plus investment. 
E) the Bank of Canada will raise the foreign exchange rate of the Canadian dollar.

Question 18

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

Question 19

Use the table below to answer the following questions.
Table 23.2.3
The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule.
  
-Consider Table 23.2.3. If planned investment decreases by $1.0 trillion at each real interest rate, what is the new equilibrium real interest rate?

Accepted Answer

A) 2 percent a year 
B) 5 percent a year 
C) 2.5 percent a year 
D) 3.5 percent a year 
E) There is no new equilibrium real interest rate. 
A) 2 percent a year 
B) 5 percent a year 
C) 2.5 percent a year 
D) 3.5 percent a year 
E) There is no new equilibrium real interest rate.

Question 20

A government budget surplus occurs, which ________ loanable funds. The real interest rate ________, household saving ________, and investment ________.

Accepted Answer

A) increases the demand for; rises; increases; decreases 
B) increases the supply of; falls; increases; decreases 
C) increases the supply of; falls; decreases; increases 
D) decreases the demand for; falls; decreases; increases 
E) decreases the supply of; decreases; decreases; increases 
A) increases the demand for; rises; increases; decreases 
B) increases the supply of; falls; increases; decreases 
C) increases the supply of; falls; decreases; increases 
D) decreases the demand for; falls; decreases; increases 
E) decreases the supply of; decreases; decreases; increases

Exam 23: Finance, Saving, and Investment

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

________ increases households' saving.

The demand for loanable funds curve

The tendency for private saving to increase in response to growing government deficits is known as the

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

Refer to the figure below to answer the following questions. Figure 23.2.2 -Refer to Figure 23.2.2. In Figure 23.2.2, a decrease in the real interest rate will result in a movement from point E to

The key Canadian financial institutions include all of the following except

If the nominal interest rate is 11 percent and the inflation rate is 9 percent, then the real interest rate is approximately

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

Refer to the figure below to answer the following questions. Figure 23.2.3 -Refer to Figure 23.2.3. In Figure 23.2.3, if the real interest rate is 6 percent, the quantity of loanable funds demanded is

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

In the market for loanable funds, as the real interest rate rises, the ________ and the ________.

In Canada's economy, investment is financed by

Suppose Canada spends more on foreign goods and services than foreigners spend on our goods and services. Then

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

A government budget surplus occurs, which ________ loanable funds. The real interest rate ________, household saving ________, and investment ________.

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

In the market for loanable funds, as the real interest rate rises, the and the .

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

A government budget surplus occurs, which loanable funds. The real interest rate , household saving , and investment .