Question 1

The term "capital," as used in macroeconomics, refers to

Accepted Answer

A)  the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. 
B)  financial wealth. 
C)  the sum of investment and government purchases of goods. 
D)  investment. 
A)  the plant, equipment, buildings, and inventories of raw materials and semi-finished goods. 
B)  financial wealth. 
C)  the sum of investment and government purchases of goods. 
D)  investment.

Question 2

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 3

When the real interest rate increases

Accepted Answer

A)  the supply of loanable funds curve shifts rightward. 
B)  the supply of loanable funds curve shifts leftward. 
C)  there is a movement upward along the supply of loanable funds curve. 
D)  there is a movement downward along the supply of loanable funds curve. 
A)  the supply of loanable funds curve shifts rightward. 
B)  the supply of loanable funds curve shifts leftward. 
C)  there is a movement upward along the supply of loanable funds curve. 
D)  there is a movement downward along the supply of loanable funds curve.

Question 4

-The economy of Dream Island, which is isolated from the rest of the world, has the supply of loanable funds schedule and the demand for loanable funds schedule shown in the table above. As it happens, all of the supply of loanable funds is from households' saving and the entre demand for loanable funds is from firms' investment demand.
a)Draw the demand and supply curves.
b)What is the equilibrium real interest rate?
c)What is equilibrium investment? Equilibrium saving?
d)Describe the situation in Dream Island's loanable funds market when the real interest rate is 10 percent. Is there a shortage of loanable funds? A surplus of loanable funds?
e)Describe the situation in Dream Island's capital market when the real interest rate is 6 percent. Is there a shortage of loanable funds? A surplus of loanable funds?

Accepted Answer

@#IMG-DLM& 
a)See the figure above.
b)The equilibr

Question 5

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

Accepted Answer

All disposable income is either used for

Question 6

-Use the information in the table above to calculate the value of government saving.

Accepted Answer

A)  $15 million 
B)  -$5 million 
C)  $5 million 
D)  $45 million 
A)  $15 million 
B)  -$5 million 
C)  $5 million 
D)  $45 million

Question 7

Suppose the market for loanable funds is in equilibrium. If the expected profit falls, the equilibrium real interest rate ________ and the quantity of loanable funds ________.

Accepted Answer

A)  falls; decreases 
B)  falls; increases 
C)  rises; increases 
D)  rises; decreases 
A)  falls; decreases 
B)  falls; increases 
C)  rises; increases 
D)  rises; decreases

Question 8

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

Question 9

Which of the following is NOT a determinant of household saving?

Accepted Answer

A)  the nominal interest rate 
B)  disposable income 
C)  the household's wealth 
D)  expected future income 
A)  the nominal interest rate 
B)  disposable income 
C)  the household's wealth 
D)  expected future income

Question 10

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 11

If two households have the same disposable income in the current year, the household with the

Accepted Answer

A)  higher expected future income will consume a larger portion of its current income today. 
B)  lower expected future income will consume more today while it has the money. 
C)  lower expected future income will spend a larger portion of its current income on consumption today because it will increase its saving in the future. 
D)  none of the above 
A)  higher expected future income will consume a larger portion of its current income today. 
B)  lower expected future income will consume more today while it has the money. 
C)  lower expected future income will spend a larger portion of its current income on consumption today because it will increase its saving in the future. 
D)  none of the above

Question 12

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a ________ in the ________ for loanable funds curve.

Accepted Answer

A)  leftward shift; demand 
B)  movement upward along; demand 
C)  leftward shift; supply 
D)  movement downward along; supply 
A)  leftward shift; demand 
B)  movement upward along; demand 
C)  leftward shift; supply 
D)  movement downward along; supply

Question 13

Gross investment

Accepted Answer

A)  is the purchase of new capital. 
B)  includes only replacement investment. 
C)  does not include additions to inventories. 
D)  Both answers A and B are correct. 
A)  is the purchase of new capital. 
B)  includes only replacement investment. 
C)  does not include additions to inventories. 
D)  Both answers A and B are correct.

Question 14

An increase in the real interest rate results in a

Accepted Answer

A)  rightward shift in the supply of loanable funds curve. 
B)  leftward shift in the supply of loanable funds curve. 
C)  movement along the supply of loanable funds curve. 
D)  none of the above. 
A)  rightward shift in the supply of loanable funds curve. 
B)  leftward shift in the supply of loanable funds curve. 
C)  movement along the supply of loanable funds curve. 
D)  none of the above.

Question 15

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 16

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

Accepted Answer

A)  0.3 percent. 
B)  8.6 percent. 
C)  6.3 percent. 
D)  9.9 percent. 
A)  0.3 percent. 
B)  8.6 percent. 
C)  6.3 percent. 
D)  9.9 percent.

Question 17

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

Accepted Answer

A)  4 percent. 
B)  6 percent. 
C)  0.25 percent. 
D)  10 percent. 
A)  4 percent. 
B)  6 percent. 
C)  0.25 percent. 
D)  10 percent.

Question 18

-The table above shows the loanable funds supply and demand schedules.
a)What is the equilibrium real interest rate and the equilibrium quantity of loanable funds?
b)If the real interest rate is 4 percent, is there a shortage or surplus? What will happen in the market?

Accepted Answer

a)The equilibrium real interest rate is

Question 19

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 20

The nominal interest rate approximately equals which of the following?

Accepted Answer

A)  the real interest rate minus the inflation rate 
B)  the real interest rate plus the inflation rate 
C)  the real interest rate minus the growth rate of real GDP 
D)  the real interest rate plus the growth rate of real GDP 
A)  the real interest rate minus the inflation rate 
B)  the real interest rate plus the inflation rate 
C)  the real interest rate minus the growth rate of real GDP 
D)  the real interest rate plus the growth rate of real GDP

The term "capital," as used in macroeconomics, refers to

Suppose that expected profit decreases. This change means

When the real interest rate increases

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

-Use the information in the table above to calculate the value of government saving.

Suppose the market for loanable funds is in equilibrium. If the expected profit falls, the equilibrium real interest rate and the quantity of loanable funds .

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?

Which of the following is NOT a determinant of household saving?

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

If two households have the same disposable income in the current year, the household with the

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a in the for loanable funds curve.

Gross investment

An increase in the real interest rate results in a

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

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

-The table above shows the loanable funds supply and demand schedules. a)What is the equilibrium real interest rate and the equilibrium quantity of loanable funds? b)If the real interest rate is 4 percent, is there a shortage or surplus? What will happen in the market?

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

The nominal interest rate approximately equals which of the following?

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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 7: Finance, Saving, and Investment

The term "capital," as used in macroeconomics, refers to

Suppose that expected profit decreases. This change means

When the real interest rate increases

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

-Use the information in the table above to calculate the value of government saving.

Suppose the market for loanable funds is in equilibrium. If the expected profit falls, the equilibrium real interest rate ________ and the quantity of loanable funds ________.

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?

Which of the following is NOT a determinant of household saving?

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

If two households have the same disposable income in the current year, the household with the

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a ________ in the ________ for loanable funds curve.

Gross investment

An increase in the real interest rate results in a

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

If people expect an inflation rate of 3.3 percent, and the real interest rate is 3 percent, the nominal interest rate equals (approximately)

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

-The table above shows the loanable funds supply and demand schedules. a)What is the equilibrium real interest rate and the equilibrium quantity of loanable funds? b)If the real interest rate is 4 percent, is there a shortage or surplus? What will happen in the market?

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

The nominal interest rate approximately equals which of the following?

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

The Business Cycle, Inflation, and Deflation

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Suppose the market for loanable funds is in equilibrium. If the expected profit falls, the equilibrium real interest rate and the quantity of loanable funds .

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a in the for loanable funds curve.