Question 1

What does a higher interest rate induce people to do?

Accepted Answer

A)  save more,so the supply of loanable funds slopes upward 
B)  save less,so the supply of loanable funds slopes downward 
C)  invest more,so the supply of loanable funds slopes upward 
D)  invest less,so the supply of loanable funds slopes downward 
A)  save more,so the supply of loanable funds slopes upward 
B)  save less,so the supply of loanable funds slopes downward 
C)  invest more,so the supply of loanable funds slopes upward 
D)  invest less,so the supply of loanable funds slopes downward

Question 2

What would most likely happen in the market for loanable funds if the government were to decrease the tax on interest income?

Accepted Answer

A)  Both investment and savings would rise. 
B)  Investment would rise,and savings would fall. 
C)  Both investment and savings would fall. 
D)  Investment would fall,and savings would rise. 
A)  Both investment and savings would rise. 
B)  Investment would rise,and savings would fall. 
C)  Both investment and savings would fall. 
D)  Investment would fall,and savings would rise.

Question 3

Suppose the Canadian government allowed taxpayers to earn their first $5000 interest free of income tax.How would this shift the supply of,or demand for,loanable funds?

Accepted Answer

A)  The supply of loanable funds would shift to the right. 
B)  The supply of loanable funds would shift to the left. 
C)  The demand for loanable funds would shift to the right. 
D)  The demand for loanable funds would shift to the left. 
A)  The supply of loanable funds would shift to the right. 
B)  The supply of loanable funds would shift to the left. 
C)  The demand for loanable funds would shift to the right. 
D)  The demand for loanable funds would shift to the left.

Question 4

What is the source of the supply of and demand for loanable funds,respectively?

Accepted Answer

A)  saving and investment 
B)  investment and saving 
C)  saving and saving 
D)  investment and investment 
A)  saving and investment 
B)  investment and saving 
C)  saving and saving 
D)  investment and investment

Question 5

Which statement best describes a characteristic of a bond?

Accepted Answer

A)  The maturity of a bond refers to the amount to be paid back. 
B)  The principal of the bond refers to the person buying the bond. 
C)  A bond buyer cannot sell a bond before it matures. 
D)  The interest paid by a bond depends on its price. 
A)  The maturity of a bond refers to the amount to be paid back. 
B)  The principal of the bond refers to the person buying the bond. 
C)  A bond buyer cannot sell a bond before it matures. 
D)  The interest paid by a bond depends on its price.

Question 6

Fred is considering expanding his skateboard shop.What will happen if interest rates rise?

Accepted Answer

A)  He is less likely to expand.This illustrates why the supply of loanable funds slopes downward. 
B)  He is more likely to expand.This illustrates why the supply of loanable funds slopes upward. 
C)  He is less likely to expand.This illustrates why the demand for loanable funds slopes downward. 
D)  He is more likely to expand.This illustrates why the demand for loanable funds slopes upward. 
A)  He is less likely to expand.This illustrates why the supply of loanable funds slopes downward. 
B)  He is more likely to expand.This illustrates why the supply of loanable funds slopes upward. 
C)  He is less likely to expand.This illustrates why the demand for loanable funds slopes downward. 
D)  He is more likely to expand.This illustrates why the demand for loanable funds slopes upward.

Question 7

Suppose the following equations give the demand and supply for loanable funds in billions of dollars; r is the real interest rate in percentage points :
QD = 160 - 10r
QS = -20 + 20r
a)Calculate the equilibrium savings,investment,and interest rate.
b)How much is the total amount received by lenders in interest?
c)Calculate the gains to lenders from financial transactions (producer surplus).
d)Calculate the gains to borrowers (the equivalent of consumer surplus).

Accepted Answer

a)The equilibrium interest rate must sol

Question 8

The country of Hykania does not trade with any other country.Its GDP is $20 billion.Its government purchases $3 billion worth of goods and services each year,collects $3 billion in taxes,and provides $1 billion in transfer payments to households.Private saving in Hyrkania is $4 billion.What is investment in Hyrkania?

Accepted Answer

A)  $1 billion 
B)  $2 billion 
C)  $3 billion 
D)  $4 billion 
A)  $1 billion 
B)  $2 billion 
C)  $3 billion 
D)  $4 billion

Question 9

What does stock represent?

Accepted Answer

A)  certificate of insurance 
B)  a bond that never matures 
C)  ownership in a company 
D)  debt finance 
A)  certificate of insurance 
B)  a bond that never matures 
C)  ownership in a company 
D)  debt finance

Question 10

Draw and label a graph showing equilibrium in the market for loanable funds.

Accepted Answer

Market for

Question 11

What does the slope of the supply of loanable funds curve represent?

Accepted Answer

A)  the positive relation between the real interest rate and investment 
B)  the positive relation between the real interest rate and saving 
C)  the negative relation between the real interest rate and investment 
D)  the negative relation between the real interest rate and saving 
A)  the positive relation between the real interest rate and investment 
B)  the positive relation between the real interest rate and saving 
C)  the negative relation between the real interest rate and investment 
D)  the negative relation between the real interest rate and saving

Question 12

If the nominal interest rate is 8 percent and the inflation rate is 4 percent,what is the real interest rate?

Accepted Answer

A)  0.44 percent 
B)  4 percent 
C)  6 percent 
D)  12 percent 
A)  0.44 percent 
B)  4 percent 
C)  6 percent 
D)  12 percent

Question 13

Assuming that other things remain the same,if the government increases transfer payments to households,what will most likely happen?

Accepted Answer

A)  Investment will rise. 
B)  The rate of interest will rise. 
C)  Public saving will rise. 
D)  The market for loanable funds will be unaffected. 
A)  Investment will rise. 
B)  The rate of interest will rise. 
C)  Public saving will rise. 
D)  The market for loanable funds will be unaffected.

What does a higher interest rate induce people to do?

What would most likely happen in the market for loanable funds if the government were to decrease the tax on interest income?

Suppose the Canadian government allowed taxpayers to earn their first $5000 interest free of income tax.How would this shift the supply of,or demand for,loanable funds?

What is the source of the supply of and demand for loanable funds,respectively?

Which statement best describes a characteristic of a bond?

Fred is considering expanding his skateboard shop.What will happen if interest rates rise?

What does stock represent?

Draw and label a graph showing equilibrium in the market for loanable funds.

What does the slope of the supply of loanable funds curve represent?

If the nominal interest rate is 8 percent and the inflation rate is 4 percent,what is the real interest rate?

Assuming that other things remain the same,if the government increases transfer payments to households,what will most likely happen?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

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Exam 8: Saving, investment, and the Financial System

What does a higher interest rate induce people to do?

What would most likely happen in the market for loanable funds if the government were to decrease the tax on interest income?

Suppose the Canadian government allowed taxpayers to earn their first $5000 interest free of income tax.How would this shift the supply of,or demand for,loanable funds?

What is the source of the supply of and demand for loanable funds,respectively?

Which statement best describes a characteristic of a bond?

Fred is considering expanding his skateboard shop.What will happen if interest rates rise?

What does stock represent?

Draw and label a graph showing equilibrium in the market for loanable funds.

What does the slope of the supply of loanable funds curve represent?

If the nominal interest rate is 8 percent and the inflation rate is 4 percent,what is the real interest rate?

Assuming that other things remain the same,if the government increases transfer payments to households,what will most likely happen?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Measuring the Cost of Living

Production and Growth

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Small Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Five Debates Over Macroeconomic Policy

Filters