Question 1

The Fisher effect states that:

Accepted Answer

A) the nominal rate of interest is unaffected by the change in expected inflation. 
B) the nominal rate of interest is unaffected by the change in unexpected inflation. 
C) the expected real rate of interest is unaffected by the change in expected inflation. 
D) the expected real rate of interest increases by one percentage point for each percentage change in expected inflation. 
A) the nominal rate of interest is unaffected by the change in expected inflation. 
B) the nominal rate of interest is unaffected by the change in unexpected inflation. 
C) the expected real rate of interest is unaffected by the change in expected inflation. 
D) the expected real rate of interest increases by one percentage point for each percentage change in expected inflation.

Question 2

Consider each of these forms of investment. Identify whether it is constitutes investment spending, an investment in physical assets, or a financial investment.
a. You purchase a 1965 Ford Mustang.
b. You buy 50 shares of stock in the Ford Motor Company.
c. Ford Motor Company builds a new plant in Tennessee.

Accepted Answer

a. This is an investment in a physical a

Question 3

You have purchased a new mattress for $2,000, and the store has given you a "12 months, same as cash" deal. This means that you do not actually have to pay for the mattress for another year. One year from now you will have to give the store the full price of $2,000. If the annual interest rate is 10%, how much money do you need today to ensure that you will have $2,000 one year from today?

Accepted Answer

A) $1,980 
B) $1,818 
C) $2,200 
D) $20,000 
A) $1,980 
B) $1,818 
C) $2,200 
D) $20,000

Question 4

Your business has $100,000 of excess cash and is considering the purchase of some real estate. The land will cost your firm $100,000 today, but you hope that in a year its value will have increased because of a new shopping mall being built nearby, and you plan to sell it for a profit. Your banker tells you that the annual rate of interest being offered to savers is 12%. What price must you receive for the land next year for this investment to be profitable?

Accepted Answer

a. This is an investment in a physical a

Question 5

The financial system performs certain tasks to make the financial market more efficient. Which one of the following is NOT one of these tasks?

Accepted Answer

A) reducing risk 
B) reducing menu costs 
C) reducing transaction costs 
D) providing liquidity 
A) reducing risk 
B) reducing menu costs 
C) reducing transaction costs 
D) providing liquidity

Question 6

Use the following to answer questions :
Figure: Crowding Out  
-(Figure: Crowding Out) Look at the figure Crowding Out. The supply of loanable funds curve SLF1 shifts to SLF2. This shift implies that:

Accepted Answer

A) private savings has increased. 
B) national investment has decreased. 
C) private savings has decreased. 
D) national savings has decreased. 
A) private savings has increased. 
B) national investment has decreased. 
C) private savings has decreased. 
D) national savings has decreased.

Question 7

Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

Accepted Answer

A) $1,250.55. 
B) $1,470.59. 
C) $1,530. 
D) $1,500. 
A) $1,250.55. 
B) $1,470.59. 
C) $1,530. 
D) $1,500.

Question 8

Inflation:

Accepted Answer

A) was very low in the 1970s and increased in the 1980s. 
B) was very high in the 1970s and decreased in the 1980s. 
C) steadily increased from 1960 through 2012. 
D) steadily decreased from 1960 through 2012. 
A) was very low in the 1970s and increased in the 1980s. 
B) was very high in the 1970s and decreased in the 1980s. 
C) steadily increased from 1960 through 2012. 
D) steadily decreased from 1960 through 2012.

Question 9

Businesses will undertake projects if the rate of return is:

Accepted Answer

A) positive. 
B) greater than or equal to the interest rate levied on the loan. 
C) greater than 1. 
D) less than the cost of borrowing for the project. 
A) positive. 
B) greater than or equal to the interest rate levied on the loan. 
C) greater than 1. 
D) less than the cost of borrowing for the project.

Question 10

Most human capital is provided by private spending for private education.

Accepted Answer

A) True 
 B)False

Question 11

Transaction costs are:

Accepted Answer

A) the return to an entrepreneur. 
B) the return to moving a product to market. 
C) the expenses of producing a product. 
D) the expenses of negotiating and executing a deal. 
A) the return to an entrepreneur. 
B) the return to moving a product to market. 
C) the expenses of producing a product. 
D) the expenses of negotiating and executing a deal.

Question 12

Which statement is CORRECT?

Accepted Answer

A) The budget deficit equals tax revenues plus transfer payments. 
B) Government spending equals private savings plus the budget deficit. 
C) Tax revenues equal national savings plus the budget deficit. 
D) The budget deficit equals government spending minus tax revenues. 
A) The budget deficit equals tax revenues plus transfer payments. 
B) Government spending equals private savings plus the budget deficit. 
C) Tax revenues equal national savings plus the budget deficit. 
D) The budget deficit equals government spending minus tax revenues.

Question 13

Human capital refers to:

Accepted Answer

A) changes in inventories. 
B) workers' education or training. 
C) funds available for investment spending. 
D) spending on physical capital, such as machines that aid workers. 
A) changes in inventories. 
B) workers' education or training. 
C) funds available for investment spending. 
D) spending on physical capital, such as machines that aid workers.

Question 14

When the demand for housing increased during the early 2000s, the demand for loanable funds decreased and caused the interest rate to decrease.

Accepted Answer

A) True 
 B)False

Question 15

An important advantage of bonds as a financial asset is that they:

Accepted Answer

A) are standardized and therefore are easier to sell than loans. 
B) offer higher rates of return than stocks. 
C) allow the owner to receive a share of the company's profits in the form of dividends. 
D) are guaranteed to be risk free. 
A) are standardized and therefore are easier to sell than loans. 
B) offer higher rates of return than stocks. 
C) allow the owner to receive a share of the company's profits in the form of dividends. 
D) are guaranteed to be risk free.

Question 16

If private savings increase, the _____ loanable funds will _____, interest rates will _____, and the amount of borrowing will _____.

Accepted Answer

A) demand for; increase; increase; increase 
B) demand for; decrease; decrease; decrease 
C) supply of; increase; decrease; increase 
D) supply of; decrease; increase; decrease 
A) demand for; increase; increase; increase 
B) demand for; decrease; decrease; decrease 
C) supply of; increase; decrease; increase 
D) supply of; decrease; increase; decrease

Question 17

The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a(n) _____ in the demand and a(n) _____ in the supply of loanable funds in domestic markets.

Accepted Answer

A) increase; decrease 
B) decrease; decrease 
C) increase; increase 
D) decrease; increase 
A) increase; decrease 
B) decrease; decrease 
C) increase; increase 
D) decrease; increase

Question 18

Use the following to answer questions :
Figure: The Market for Loanable Funds III  
-(Figure: The Market for Loanable Funds III) Look at the figure The Market for Loanable Funds III. If the government in a closed economy finances deficits by selling bonds and it decides to decrease defense spending by $200 billion, the equilibrium interest rate will:

Accepted Answer

A) rise to 18%. 
B) not change. 
C) fall to 13.5%. 
D) fall to 12%. 
A) rise to 18%. 
B) not change. 
C) fall to 13.5%. 
D) fall to 12%.

Question 19

The government saves when it runs a budget deficit.

Accepted Answer

A) True 
 B)False

Question 20

According to the savings-investment spending identity, savings and investment spending are always equal for the economy as a whole.

Accepted Answer

A) True 
 B)False

The Fisher effect states that:

The financial system performs certain tasks to make the financial market more efficient. Which one of the following is NOT one of these tasks?

Use the following to answer questions : Figure: Crowding Out -(Figure: Crowding Out) Look at the figure Crowding Out. The supply of loanable funds curve S_LF₁ shifts to S_LF₂. This shift implies that:

Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

Inflation:

Businesses will undertake projects if the rate of return is:

Most human capital is provided by private spending for private education.

Transaction costs are:

Which statement is CORRECT?

Human capital refers to:

When the demand for housing increased during the early 2000s, the demand for loanable funds decreased and caused the interest rate to decrease.

An important advantage of bonds as a financial asset is that they:

If private savings increase, the ___ loanable funds will _, interest rates will _, and the amount of borrowing will ___.

The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a(n) _ in the demand and a(n) _ in the supply of loanable funds in domestic markets.

The government saves when it runs a budget deficit.

According to the savings-investment spending identity, savings and investment spending are always equal for the economy as a whole.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

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

The Fisher effect states that:

The financial system performs certain tasks to make the financial market more efficient. Which one of the following is NOT one of these tasks?

Use the following to answer questions : Figure: Crowding Out -(Figure: Crowding Out) Look at the figure Crowding Out. The supply of loanable funds curve SLF1 shifts to SLF2. This shift implies that:

Given an annual interest rate of 2%, the present value of a future payment of $1,500 to be paid in one year is:

Inflation:

Businesses will undertake projects if the rate of return is:

Most human capital is provided by private spending for private education.

Transaction costs are:

Which statement is CORRECT?

Human capital refers to:

When the demand for housing increased during the early 2000s, the demand for loanable funds decreased and caused the interest rate to decrease.

An important advantage of bonds as a financial asset is that they:

If private savings increase, the _____ loanable funds will _____, interest rates will _____, and the amount of borrowing will _____.

The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a(n) _____ in the demand and a(n) _____ in the supply of loanable funds in domestic markets.

The government saves when it runs a budget deficit.

According to the savings-investment spending identity, savings and investment spending are always equal for the economy as a whole.

First Principles

Economic Models

Supply and Demand

International Trade 5

Macroeconomics: the Big Picture

Gdp and Cpi: Tracking the Macroeconomy

Unemployment and Inflation

Long-Run Economic Growth

Fiscal Policy Appendix Taxes and the Multiplier

Money, Banking, and the Federal Reserve System

Monetary Policy

Inflation, Disinflation, and Deflation

Crises and Consequences

Events and Ideas

Open-Economy Macroeconomics

Graphs in Economics

toward a Fuller Understanding of Present Value

Filters

Use the following to answer questions : Figure: Crowding Out -(Figure: Crowding Out) Look at the figure Crowding Out. The supply of loanable funds curve S_LF₁ shifts to S_LF₂. This shift implies that:

If private savings increase, the ___ loanable funds will _, interest rates will _, and the amount of borrowing will ___.

The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a(n) _ in the demand and a(n) _ in the supply of loanable funds in domestic markets.