Question 1

The funds used to buy and operate physical capital are

Accepted Answer

A)  depreciation. 
B)  financial capital. 
C)  saving. 
D)  wealth. 
A)  depreciation. 
B)  financial capital. 
C)  saving. 
D)  wealth.

Question 2

A rise in the real interest rate

Accepted Answer

A)  decreases the demand for loanable funds. 
B)  increases the demand for loanable funds. 
C)  decreases the quantity of loanable funds demanded. 
D)  increases the quantity of loanable funds demanded. 
A)  decreases the demand for loanable funds. 
B)  increases the demand for loanable funds. 
C)  decreases the quantity of loanable funds demanded. 
D)  increases the quantity of loanable funds demanded.

Question 3

If households expect an increase in their future incomes,they will save

Accepted Answer

A)  less and consume more today 
B)  more and consume less today 
C)  and consume more today 
D)  and consume less today 
A)  less and consume more today 
B)  more and consume less today 
C)  and consume more today 
D)  and consume less today

Question 4

The Ricardo-Barro effect says that

Accepted Answer

A)  government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government. 
B)  government budget deficits crowd out private investment and thereby lower the real interest rate. 
C)  government budget deficits resulting from an increase in government expenditure have no effect on investment but government deficits resulting from a decrease in taxes crowd out investment. 
D)  government budget deficits cause households to save more in anticipation of higher taxes, which causes higher real interest rates. 
A)  government budget deficits have no crowding out effect because taxpayers increase their savings to match the quantity of loanable funds demanded by the government. 
B)  government budget deficits crowd out private investment and thereby lower the real interest rate. 
C)  government budget deficits resulting from an increase in government expenditure have no effect on investment but government deficits resulting from a decrease in taxes crowd out investment. 
D)  government budget deficits cause households to save more in anticipation of higher taxes, which causes higher real interest rates.

Question 5

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 
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

Question 6

In January 2013,you can put your savings in a Bank of America account and be paid 2 percent per year. During 2013,suppose the inflation rate is 3.4 percent. In 2013 you earned a real interest rate of

Accepted Answer

A)  0.59 percent. 
B)  6.8 percent. 
C)  1.4 percent. 
D)  -1.4 percent. 
A)  0.59 percent. 
B)  6.8 percent. 
C)  1.4 percent. 
D)  -1.4 percent.

Question 7

Greater optimism about the expected profits from investment projects

Accepted Answer

A)  shifts the demand for loanable funds curve rightward. 
B)  shifts the demand for loanable funds curve leftward. 
C)  causes a movement upward along the demand for loanable funds curve. 
D)  causes a movement downward along the demand for loanable funds curve. 
A)  shifts the demand for loanable funds curve rightward. 
B)  shifts the demand for loanable funds curve leftward. 
C)  causes a movement upward along the demand for loanable funds curve. 
D)  causes a movement downward along the demand for loanable funds curve.

Question 8

Does a change in the real interest rate shift the supply of loanable funds curve?
Explain your answer.

Accepted Answer

A change in the real interest rate does

Question 9

The real interest rate has a positive relationship with the supply of loanable funds.

Accepted Answer

A) True 
 B)False

Question 10

Suppose that expected profit decreases. This change means

Accepted Answer

A)  the demand curve for loanable funds shifts leftward and the real interest rate falls. 
B)  the supply curve for loanable funds shifts rightward and the nominal interest rate rises. 
C)  there is a movement down along the demand curve for loanable funds. 
D)  the real interest rate rises as saving increases. 
A)  the demand curve for loanable funds shifts leftward and the real interest rate falls. 
B)  the supply curve for loanable funds shifts rightward and the nominal interest rate rises. 
C)  there is a movement down along the demand curve for loanable funds. 
D)  the real interest rate rises as saving increases.

Question 11

Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result,Country A will ________ funds from the rest of the world and engage in net foreign ________.

Accepted Answer

A)  receive; lending 
B)  send; lending 
C)  receive; borrowing 
D)  send; borrowing 
A)  receive; lending 
B)  send; lending 
C)  receive; borrowing 
D)  send; borrowing

Question 12

When a government has a budget surplus,the surplus

Accepted Answer

A)  helps finance investment. 
B)  crowds-out private saving. 
C)  must be subtracted from private saving to get total saving. 
D)  increases the world real interest rate. 
A)  helps finance investment. 
B)  crowds-out private saving. 
C)  must be subtracted from private saving to get total saving. 
D)  increases the world real interest rate.

Question 13

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

Accepted Answer

A)  A lower real interest rate makes more investment projects profitable. 
B)  Consumers are willing to spend less and hence save more at higher real interest rates. 
C)  Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. 
D)  All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate. 
A)  A lower real interest rate makes more investment projects profitable. 
B)  Consumers are willing to spend less and hence save more at higher real interest rates. 
C)  Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. 
D)  All of the above are reasons why the demand for loanable funds is negatively related to the real interest rate.

Question 14

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 15

In 2008,the many people became unable to make payments on their mortgages and instead defaulted on them.As a result,the ________ of loanable funds curve shifts ________ and real interest rate ________.

Accepted Answer

A)  supply; leftward; increases 
B)  demand; leftward; increases. 
C)  supply; rightward; falls. 
D)  demand; rightward; decreases. 
A)  supply; leftward; increases 
B)  demand; leftward; increases. 
C)  supply; rightward; falls. 
D)  demand; rightward; decreases.

Question 16

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. 
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.

Question 17

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

Accepted Answer

A)  Greece and Spain are considered risky borrowers and their interest rates reflect a sizable risk premium. 
B)  Greece and Spain are considered large borrowers and their interest rates reflect a sizable transaction cost. 
C)  Greece and Spain are not fully integrated into the global economy. 
D)  Greece and Spain are considered small borrowers and do not attract many interested lenders because the potential profit is so small. 
A)  Greece and Spain are considered risky borrowers and their interest rates reflect a sizable risk premium. 
B)  Greece and Spain are considered large borrowers and their interest rates reflect a sizable transaction cost. 
C)  Greece and Spain are not fully integrated into the global economy. 
D)  Greece and Spain are considered small borrowers and do not attract many interested lenders because the potential profit is so small.

Question 18

As the ________ interest rate increases,the quantity of loanable funds demanded ________.

Accepted Answer

A)  real; increases 
B)  real; decreases 
C)  nominal; increases 
D)  nominal; decreases 
A)  real; increases 
B)  real; decreases 
C)  nominal; increases 
D)  nominal; decreases

Question 19

Suppose that you took out a $1000 loan in January and had 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. 
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.

Question 20

Suppose that,initially,the nominal interest rate is 6 percent and the inflation rate is 3 percent.If the inflation rate increases to 6 percent,what will be the new nominal interest rate?

Accepted Answer

A)  6 percent 
B)  1 percent 
C)  11 percent 
D)  9 percent 
A)  6 percent 
B)  1 percent 
C)  11 percent 
D)  9 percent

The funds used to buy and operate physical capital are

A rise in the real interest rate

If households expect an increase in their future incomes,they will save

The Ricardo-Barro effect says that

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

In January 2013,you can put your savings in a Bank of America account and be paid 2 percent per year. During 2013,suppose the inflation rate is 3.4 percent. In 2013 you earned a real interest rate of

Greater optimism about the expected profits from investment projects

Does a change in the real interest rate shift the supply of loanable funds curve? Explain your answer.

The real interest rate has a positive relationship with the supply of loanable funds.

Suppose that expected profit decreases. This change means

Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result,Country A will funds from the rest of the world and engage in net foreign .

When a government has a budget surplus,the surplus

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

The capital stock increases whenever

In 2008,the many people became unable to make payments on their mortgages and instead defaulted on them.As a result,the of loanable funds curve shifts and real interest rate .

Real interest rates around the world tend to

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

As the interest rate increases,the quantity of loanable funds demanded .

Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent. Which of the following statements is correct?

Suppose that,initially,the nominal interest rate is 6 percent and the inflation rate is 3 percent.If the inflation rate increases to 6 percent,what will be the new nominal interest rate?

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

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

Exam 7: Finance, Saving, and Investment

The funds used to buy and operate physical capital are

A rise in the real interest rate

If households expect an increase in their future incomes,they will save

The Ricardo-Barro effect says that

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

In January 2013,you can put your savings in a Bank of America account and be paid 2 percent per year. During 2013,suppose the inflation rate is 3.4 percent. In 2013 you earned a real interest rate of

Greater optimism about the expected profits from investment projects

Does a change in the real interest rate shift the supply of loanable funds curve? Explain your answer.

The real interest rate has a positive relationship with the supply of loanable funds.

Suppose that expected profit decreases. This change means

Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result,Country A will ________ funds from the rest of the world and engage in net foreign ________.

When a government has a budget surplus,the surplus

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

The capital stock increases whenever

In 2008,the many people became unable to make payments on their mortgages and instead defaulted on them.As a result,the ________ of loanable funds curve shifts ________ and real interest rate ________.

Real interest rates around the world tend to

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

As the ________ interest rate increases,the quantity of loanable funds demanded ________.

Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent. Which of the following statements is correct?

Suppose that,initially,the nominal interest rate is 6 percent and the inflation rate is 3 percent.If the inflation rate increases to 6 percent,what will be the new nominal interest rate?

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

Inflation, Jobs, and the Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Introduction

Monitoring Macroeconomic Performance

Macroeconomic Trends

Macroeconomic Fluctuations

Macroeconomic Policy

Filters

Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result,Country A will funds from the rest of the world and engage in net foreign .

In 2008,the many people became unable to make payments on their mortgages and instead defaulted on them.As a result,the of loanable funds curve shifts and real interest rate .

As the interest rate increases,the quantity of loanable funds demanded .