Question 1

Expected profit and the real interest rate affect investment decisions.

Accepted Answer

A) True 
 B)False

Question 2

The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 3

Sarah and Diane are both billing clerks for the local trucking company earning $17,000 per year. Sarah is attending college,plans to graduate in one year and earn $55,000 as an economist. Diane is not in college or undergoing any specialized training and will have the same job next year. According to economic theory,which of the two individuals would tend to have a higher current savings rate?

Accepted Answer

A)  Diane 
B)  Sarah 
C)  Both will have the same saving rate 
D)  Economic theory sheds no light on this question 
A)  Diane 
B)  Sarah 
C)  Both will have the same saving rate 
D)  Economic theory sheds no light on this question

Question 4

When the inflation rate is positive,the

Accepted Answer

A)  real interest rate is greater than the nominal interest rate. 
B)  real interest rate is less than the nominal interest rate. 
C)  nominal interest rate is zero. 
D)  real interest rate equals the nominal interest rate. 
A)  real interest rate is greater than the nominal interest rate. 
B)  real interest rate is less than the nominal interest rate. 
C)  nominal interest rate is zero. 
D)  real interest rate equals the nominal interest rate.

Question 5

Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent.At the end of the year you have earned

Accepted Answer

A)  a nominal return of $50. 
B)  a negative real return. 
C)  a real return of $50. 
D)  a real return of $80. 
A)  a nominal return of $50. 
B)  a negative real return. 
C)  a real return of $50. 
D)  a real return of $80.

Question 6

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 their personal saving when governments run budget deficits. 
D)  government budget deficits increase households' expected future disposable income. 
A)  government deficits raise the real interest rate. 
B)  taxpayers fail to foresee that government deficits imply higher future taxes. 
C)  households increase their personal saving when governments run budget deficits. 
D)  government budget deficits increase households' expected future disposable income.

Question 7

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

Accepted Answer

A)  the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it. 
B)  the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it. 
C)  you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan. 
D)  you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan. 
A)  the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it. 
B)  the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it. 
C)  you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan. 
D)  you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan.

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

Question 9

-In the above figure,an increase in the expected profit will result in a movement from point E to

Accepted Answer

A)  point F. 
B)  point G. 
C)  point H. 
D)  point I. 
A)  point F. 
B)  point G. 
C)  point H. 
D)  point I.

Question 10

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

Accepted Answer

A)  the nominal interest rate will also increase. 
B)  the demand for loanable funds curve will shift rightward. 
C)  there will be a movement up along the demand for loanable funds curve. 
D)  the supply of loanable funds curve will shift rightward. 
A)  the nominal interest rate will also increase. 
B)  the demand for loanable funds curve will shift rightward. 
C)  there will be a movement up along the demand for loanable funds curve. 
D)  the supply of loanable funds curve will shift rightward.

Question 11

As the purchasing power of wealth increases,saving decreases.

Accepted Answer

A) True 
 B)False

Question 12

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 13

-In the above figure,the demand for loanable funds curve is drawn for the average expected profit.If the real interest rate is constant at 6 percent and the expected profit falls,the amount of loanable funds demanded will be

Accepted Answer

A)  less than $450 billion. 
B)  $450 billion. 
C)  between $450 billion and $600 billion. 
D)  greater than $600 billion. 
A)  less than $450 billion. 
B)  $450 billion. 
C)  between $450 billion and $600 billion. 
D)  greater than $600 billion.

Question 14

The Ricardo-Barro effect of a government budget deficit refers to

Accepted Answer

A)  a change in private savings supply. 
B)  a large crowding out effect from a government budget deficit. 
C)  a large crowding out effect from a government budget surplus. 
D)  the international impact of government deficits. 
A)  a change in private savings supply. 
B)  a large crowding out effect from a government budget deficit. 
C)  a large crowding out effect from a government budget surplus. 
D)  the international impact of government deficits.

Question 15

How does an increase in the expected profit affect investment demand and the demand for loanable funds curve?

Accepted Answer

An increase in the expected profit incre

Question 16

If net taxes exceed government expenditures,the government sector has a budget ________ and government saving is ________.

Accepted Answer

A)  surplus; positive 
B)  surplus; negative 
C)  deficit; positive 
D)  deficit; negative 
A)  surplus; positive 
B)  surplus; negative 
C)  deficit; positive 
D)  deficit; negative

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

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)  does not change because it is not affected by the interest rate. 
C)  falls from $25,000 to $20,000. 
D)  rises from $2,000 to $2,500. 
A)  falls from $2,500 to $2,000. 
B)  does not change because it is not affected by the interest rate. 
C)  falls from $25,000 to $20,000. 
D)  rises from $2,000 to $2,500.

Question 19

A movement downward along the demand for loanable funds curve occurs when

Accepted Answer

A)  the expected profit from investment increases. 
B)  business expectations become more optimistic. 
C)  the real interest rate falls. 
D)  the supply of loanable funds decreases. 
A)  the expected profit from investment increases. 
B)  business expectations become more optimistic. 
C)  the real interest rate falls. 
D)  the supply of loanable funds decreases.

Question 20

How does the real interest affect households' decisions about saving?

Accepted Answer

All disposable income is either used for

Expected profit and the real interest rate affect investment decisions.

The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

When the inflation rate is positive,the

Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent.At the end of the year you have earned

According to the Ricardo-Barro effect,

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

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

-In the above figure,an increase in the expected profit will result in a movement from point E to

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

As the purchasing power of wealth increases,saving decreases.

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 demand for loanable funds curve is drawn for the average expected profit.If the real interest rate is constant at 6 percent and the expected profit falls,the amount of loanable funds demanded will be

The Ricardo-Barro effect of a government budget deficit refers to

How does an increase in the expected profit affect investment demand and the demand for loanable funds curve?

If net taxes exceed government expenditures,the government sector has a budget and government saving is .

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?

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

A movement downward along the demand for loanable funds curve occurs when

How does the real interest affect households' decisions about saving?

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

Expected profit and the real interest rate affect investment decisions.

The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

When the inflation rate is positive,the

Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent.At the end of the year you have earned

According to the Ricardo-Barro effect,

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

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

-In the above figure,an increase in the expected profit will result in a movement from point E to

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

As the purchasing power of wealth increases,saving decreases.

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 demand for loanable funds curve is drawn for the average expected profit.If the real interest rate is constant at 6 percent and the expected profit falls,the amount of loanable funds demanded will be

The Ricardo-Barro effect of a government budget deficit refers to

How does an increase in the expected profit affect investment demand and the demand for loanable funds curve?

If net taxes exceed government expenditures,the government sector has a budget ________ and government saving is ________.

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?

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

A movement downward along the demand for loanable funds curve occurs when

How does the real interest affect households' decisions about saving?

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

If net taxes exceed government expenditures,the government sector has a budget and government saving is .