Exam 10: Savings, Investment Spending, and the Financial System

You have contracted to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 1%. How does this affect the borrower (you) and the lender (the bank)? Who is better off?

Capital inflow is:

Facebook's primary type of investment spending is the purchase of:

Crowding out means:

Because bonds are more standardized than loans, transactions costs for bonds are typically lower than transactions costs for loans.

Which of the following is NOT a financial intermediary?

Financial markets eliminate transactions costs.

Alison lends $100 to Vanessa for one year. Alison expects that inflation will be 10%. If Alison wishes to maintain the real value of her $100, she should expect payment from Vanessa in the amount of:

A loan is a liability to the issuer but an asset to the person taking it out.

According to the savings-investment spending identity:

During the financial crisis of 2008, many financial assets lost value, but mortgage-backed securities never underwent default.

The theory that assets embody all publicly available information about their fundamentals is the:

All of the following are financial intermediaries EXCEPT:

Facebook's primary type of investment spending is the purchase of server farms, or arrays of linked computers that track and process social media information.

Investment spending contributes to economic growth.

Interest rates were high during the 1970s and decreased during the 1980s because expected inflation was:

You have agreed to borrow $2,000 from the bank for one year. The nominal rate of interest is 8.5% and the real interest rate is 6%. At the end of the year, inflation was 3.5%. How does this affect the borrower (you) and the lender (the bank)? Who is better off?

Use the following to answer questions : Figure: The Market for Loanable Funds II -(Figure: The Market for Loanable Funds II) Look at the figure The Market for Loanable Funds II. Other things being equal, if there is a decrease in the interest rate below 8%, _____ quantity of loanable funds will be demanded.

A _____ is a nonprofit institution that collects the savings of its members and invests those funds in a diversified portfolio to provide income to members when they retire.

Higher interest rates encourage investment spending.