Question 1

If economic expansion is expected to decrease, the demand for loanable funds should ____ and interest rates should ____.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase

Question 2

If the real interest rate is expected to become negative, then the purchasing power of savings would be ____, as the inflation rate is expected to be ____ the existing nominal interest rate.

Accepted Answer

A)  decreasing; less than 
B)  decreasing; greater than 
C)  increasing; greater than 
D)  increasing; less than 
A)  decreasing; less than 
B)  decreasing; greater than 
C)  increasing; greater than 
D)  increasing; less than

Question 3

Which of the following statements is incorrect?

Accepted Answer

A)  The Fed's monetary policy is intended to influence U.S. economic conditions. 
B)  The Fed's monetary policy affects the supply of loanable funds, which affects interest rates. 
C)  By influencing interest rates, the Fed is able to influence the amount of money that corporations and households are willing to borrow and spend. 
D)  All of the statements above are true. 
A)  The Fed's monetary policy is intended to influence U.S. economic conditions. 
B)  The Fed's monetary policy affects the supply of loanable funds, which affects interest rates. 
C)  By influencing interest rates, the Fed is able to influence the amount of money that corporations and households are willing to borrow and spend. 
D)  All of the statements above are true.

Question 4

When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

Accepted Answer

A)  increase; decrease 
B)  increase; increase 
C)  decrease; increase 
D)  decrease; decrease 
A)  increase; decrease 
B)  increase; increase 
C)  decrease; increase 
D)  decrease; decrease

Question 5

Which of the following is a valid representation of the Fisher effect?

Accepted Answer

A)  i = E(INF) + iR 
B)  iR = E(INF) + i 
C)  E(INF) = i + iR 
D)  none of the above 
A)  i = E(INF) + iR 
B)  iR = E(INF) + i 
C)  E(INF) = i + iR 
D)  none of the above

Question 6

Which of the following will probably not result in an increase in the business demand for loanable funds?

Accepted Answer

A)  an increase in positive net present value (NPV) projects 
B)  a reduction in interest rates on business loans 
C)  a recession 
D)  none of the above 
A)  an increase in positive net present value (NPV) projects 
B)  a reduction in interest rates on business loans 
C)  a recession 
D)  none of the above

Question 7

The federal government's spending policies are generally thought to be _________ interest rates, but municipal governments' spending is somewhat ________ interest rates.

Accepted Answer

A)  independent of; sensitive to 
B)  sensitive to; independent of 
C)  inversely rated to; positively related to 
D)  positively related to; inversely related to 
A)  independent of; sensitive to 
B)  sensitive to; independent of 
C)  inversely rated to; positively related to 
D)  positively related to; inversely related to

Question 8

Which of the following is least likely to affect household demand for loanable funds?

Accepted Answer

A)  a decrease in tax rates 
B)  an increase in interest rates 
C)  a reduction in positive net present value (NPV) projects available 
D)  All of the above are equally likely to affect household demand for loanable funds. 
A)  a decrease in tax rates 
B)  an increase in interest rates 
C)  a reduction in positive net present value (NPV) projects available 
D)  All of the above are equally likely to affect household demand for loanable funds.

Question 9

The expected impact of an increased expansion by businesses is an ____ shift in the demand schedule and ____ in the supply schedule.

Accepted Answer

A)  inward; an inward shift 
B)  inward; an outward shift 
C)  outward; an inward shift 
D)  outward; no obvious change 
A)  inward; an inward shift 
B)  inward; an outward shift 
C)  outward; an inward shift 
D)  outward; no obvious change

Question 10

If a strong economy allows for a large ____ in households' income, the supply curve will shift ____.

Accepted Answer

A)  decrease; outward 
B)  increase; inward 
C)  increase; outward 
D)  none of the above 
A)  decrease; outward 
B)  increase; inward 
C)  increase; outward 
D)  none of the above

Question 11

For a given set of foreign interest rates, the quantity of U.S. loanable funds demanded by foreign governments or firms will be ____ U.S. interest rates.

Accepted Answer

A)  positively related to 
B)  inversely related to 
C)  unrelated to 
D)  none of the above 
A)  positively related to 
B)  inversely related to 
C)  unrelated to 
D)  none of the above

Question 12

The business demand for funds resulting from short-term investments is inversely related to the number of projects implemented and inversely related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 13

The ____ sector is the largest supplier of loanable funds.

Accepted Answer

A)  household 
B)  government 
C)  business 
D)  none of the above 
A)  household 
B)  government 
C)  business 
D)  none of the above

Question 14

At any point in time, households and businesses demand a greater quantity of loanable funds at lower rates of interest.

Accepted Answer

A) True 
 B)False

Question 15

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the UnitedStates will ____, and U.S. interest rates will ____.

Accepted Answer

A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase 
A)  increase; increase 
B)  increase; decrease 
C)  decrease; decrease 
D)  decrease; increase

Question 16

The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.

Accepted Answer

A)  Fisher effect 
B)  loanable funds theory 
C)  real interest rate 
D)  none of the above 
A)  Fisher effect 
B)  loanable funds theory 
C)  real interest rate 
D)  none of the above

Question 17

In computing the net present value of a proposed project, the required rate of return to implement the project will be ______ if interest rates are ________.

Accepted Answer

A)  lower; higher 
B)  lower; lower 
C)  higher; lower 
D)  higher; unchanged 
A)  lower; higher 
B)  lower; lower 
C)  higher; lower 
D)  higher; unchanged

Question 18

If the aggregate demand for loanable funds increases without a corresponding ____ in aggregate supply, there will be a ____ of loanable funds.

Accepted Answer

A)  increase; surplus 
B)  increase; shortage 
C)  decrease; surplus 
D)  decrease; shortage 
A)  increase; surplus 
B)  increase; shortage 
C)  decrease; surplus 
D)  decrease; shortage

Question 19

Businesses demand loanable funds to

Accepted Answer

A)  finance installment debt. 
B)  subsidize other companies. 
C)  invest in fixed and short-term assets. 
D)  none of the above 
A)  finance installment debt. 
B)  subsidize other companies. 
C)  invest in fixed and short-term assets. 
D)  none of the above

Question 20

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place ____ pressure on Canadian interest rates and ____ pressureonU.S. interest rates.

Accepted Answer

A)  upward; upward 
B)  upward; downward 
C)  downward; downward 
D)  downward; upward 
A)  upward; upward 
B)  upward; downward 
C)  downward; downward 
D)  downward; upward

Exam 2: Determination of Interest Rates

If economic expansion is expected to decrease, the demand for loanable funds should ____ and interest rates should ____.

If the real interest rate is expected to become negative, then the purchasing power of savings would be ____, as the inflation rate is expected to be ____ the existing nominal interest rate.

Which of the following statements is incorrect?

When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

Which of the following is a valid representation of the Fisher effect?

Which of the following will probably not result in an increase in the business demand for loanable funds?

The federal government's spending policies are generally thought to be _________ interest rates, but municipal governments' spending is somewhat ________ interest rates.

Which of the following is least likely to affect household demand for loanable funds?

The expected impact of an increased expansion by businesses is an ____ shift in the demand schedule and ____ in the supply schedule.

If a strong economy allows for a large ____ in households' income, the supply curve will shift ____.

For a given set of foreign interest rates, the quantity of U.S. loanable funds demanded by foreign governments or firms will be ____ U.S. interest rates.

The business demand for funds resulting from short-term investments is inversely related to the number of projects implemented and inversely related to the interest rate.

The ____ sector is the largest supplier of loanable funds.

At any point in time, households and businesses demand a greater quantity of loanable funds at lower rates of interest.

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the UnitedStates will ____, and U.S. interest rates will ____.

The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.

In computing the net present value of a proposed project, the required rate of return to implement the project will be ______ if interest rates are ________.

If the aggregate demand for loanable funds increases without a corresponding ____ in aggregate supply, there will be a ____ of loanable funds.

Businesses demand loanable funds to

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place ____ pressure on Canadian interest rates and ____ pressureonU.S. interest rates.

Role of Financial Markets and Institutions

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance Operations

Pension Fund Operations

Filters

If economic expansion is expected to decrease, the demand for loanable funds should and interest rates should .

If the real interest rate is expected to become negative, then the purchasing power of savings would be , as the inflation rate is expected to be the existing nominal interest rate.

When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds to and the demand for loanable funds to .

The federal government's spending policies are generally thought to be _ interest rates, but municipal governments' spending is somewhat interest rates.

The expected impact of an increased expansion by businesses is an shift in the demand schedule and in the supply schedule.

If a strong economy allows for a large in households' income, the supply curve will shift .

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the UnitedStates will , and U.S. interest rates will .

In computing the net present value of a proposed project, the required rate of return to implement the project will be if interest rates are __.

If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be a of loanable funds.

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place pressure on Canadian interest rates and pressureonU.S. interest rates.