Question 1

Bond prices will increase if interest rates increase.

Accepted Answer

A) True 
 B)False  False

Question 2

The crowding out effect of government borrowing refers to a decrease in:

Accepted Answer

A)  private consumption only. 
B)  private investment only. 
C)  both private consumption and private investment. 
D)  neither private consumption nor private investment. 
A)  private consumption only. 
B)  private investment only. 
C)  both private consumption and private investment. 
D)  neither private consumption nor private investment. C

Question 3

Higher interest rates typically _____ borrowing,ceteris paribus.

Accepted Answer

A)  decrease 
B)  maintain 
C)  increase 
D)  indeterminately change 
A)  decrease 
B)  maintain 
C)  increase 
D)  indeterminately change A

Question 4

An increase in the demand for borrowing will cause the equilibrium quantity of saving to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  first increase and then decrease. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  first increase and then decrease.

Question 5

Time preference is the desire to:

Accepted Answer

A)  save for a time when income will be reduced. 
B)  have goods and services sooner rather than later. 
C)  maximize return on investment in the shortest amount of time. 
D)  increase longevity in order to have a greater income. 
A)  save for a time when income will be reduced. 
B)  have goods and services sooner rather than later. 
C)  maximize return on investment in the shortest amount of time. 
D)  increase longevity in order to have a greater income.

Question 6

Which of the following institutions channels loanable funds from savers to borrowers?

Accepted Answer

A)  the Treasury Department 
B)  Congress 
C)  the Internal Revenue Service 
D)  financial intermediaries 
A)  the Treasury Department 
B)  Congress 
C)  the Internal Revenue Service 
D)  financial intermediaries

Question 7

Bond prices and bond interest rates move:

Accepted Answer

A)  together when there is collateral damage. 
B)  together when there is arbitrage. 
C)  in the same direction. 
D)  in opposite directions. 
A)  together when there is collateral damage. 
B)  together when there is arbitrage. 
C)  in the same direction. 
D)  in opposite directions.

Question 8

Use the following to answer questions 
Figure: Market for Loanable Funds
 
-(Figure: Market for Loanable Funds)Equilibrium in this market for loanable funds occurs when the interest rate is:

Accepted Answer

A)  3%. 
B)  4%. 
C)  5%. 
D)  higher than 5%. 
A)  3%. 
B)  4%. 
C)  5%. 
D)  higher than 5%.

Question 9

People with a high time preference are less likely to:

Accepted Answer

A)  engage in crime. 
B)  use heroin. 
C)  drop out of school. 
D)  save. 
A)  engage in crime. 
B)  use heroin. 
C)  drop out of school. 
D)  save.

Question 10

Use the following to answer questions 
Figure: Loanable Funds Contraction
 
-(Figure: Loanable Funds Contraction)Which of the following reasons could cause the supply curve for loanable funds to shift to the left from SLF to S1LF in the figure?

Accepted Answer

A)  The economy is expected to go into a recession. 
B)  An existing investment tax credit is abolished. 
C)  The government ceases taxing interest earnings. 
D)  Consumers become less patient. 
A)  The economy is expected to go into a recession. 
B)  An existing investment tax credit is abolished. 
C)  The government ceases taxing interest earnings. 
D)  Consumers become less patient.

Question 11

The buyer of a bond is a borrower.

Accepted Answer

A) True 
 B)False

Question 12

If the government imposes an interest rate ceiling below the equilibrium interest rate in the loanable funds market,then:

Accepted Answer

A)  the quantity of savings supplied will be less than the quantity of loanable funds demanded. 
B)  the quantity of savings supplied will be more than the quantity of loanable funds demanded. 
C)  the quantity of savings supplied will be equal to the quantity of loanable funds demanded. 
D)  the quantity of savings supplied and the quantity of loanable funds demanded will not be affected. 
A)  the quantity of savings supplied will be less than the quantity of loanable funds demanded. 
B)  the quantity of savings supplied will be more than the quantity of loanable funds demanded. 
C)  the quantity of savings supplied will be equal to the quantity of loanable funds demanded. 
D)  the quantity of savings supplied and the quantity of loanable funds demanded will not be affected.

Question 13

When a family's income becomes more uncertain,we expect its saving to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more uncertain. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more uncertain.

Question 14

An increase in domestic borrowing today will lead to an increase in the supply of loanable funds and an increase in domestic interest rates.

Accepted Answer

A) True 
 B)False

Question 15

Use the following to answer questions 
Figure: Loanable Funds Contraction
 
-(Figure: Loanable Funds Contraction)In the accompanying figure,if the supply of loanable funds decreases from SLF to S1LF and the demand for loanable funds remains at DLF,the equilibrium interest rate will:

Accepted Answer

A)  increase to i1. 
B)  remain at i0. 
C)  fall to i2. 
D)  increase or decrease temporarily and then return to i0. 
A)  increase to i1. 
B)  remain at i0. 
C)  fall to i2. 
D)  increase or decrease temporarily and then return to i0.

Question 16

The shadow banking system includes each of the following except:

Accepted Answer

A)  hedge funds. 
B)  money market funds. 
C)  derivatives. 
D)  commercial banks. 
A)  hedge funds. 
B)  money market funds. 
C)  derivatives. 
D)  commercial banks.

Question 17

An increase in life expectancy should cause saving in the United States to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more volatile. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  become more volatile.

Question 18

Use the following to answer questions 
Figure: Market for Loanable Funds
 
-(Figure: Market for Loanable Funds)If the interest rate is 3% in this market for loanable funds,then:

Accepted Answer

A)  investment exceeds savings by $200 million. 
B)  investment exceeds savings by $100 million. 
C)  borrowing demands exceed savings by $200 million. 
D)  borrowing demands exceed savings by $100 million. 
A)  investment exceeds savings by $200 million. 
B)  investment exceeds savings by $100 million. 
C)  borrowing demands exceed savings by $200 million. 
D)  borrowing demands exceed savings by $100 million.

Question 19

When a person's income is greater than her spending on consumption goods,then she is:

Accepted Answer

A)  dissaving. 
B)  saving. 
C)  investing. 
D)  disinvesting. 
A)  dissaving. 
B)  saving. 
C)  investing. 
D)  disinvesting.

Question 20

In the lifecycle theory of savings,the sequence of behavior is as follows:

Accepted Answer

A)  borrow,dissave,save. 
B)  borrow,save,dissave. 
C)  save,borrow,dissave. 
D)  save,dissave,borrow. 
A)  borrow,dissave,save. 
B)  borrow,save,dissave. 
C)  save,borrow,dissave. 
D)  save,dissave,borrow.

Exam 9: Saving,investment,and the Financial System

Bond prices will increase if interest rates increase.

The crowding out effect of government borrowing refers to a decrease in:

Higher interest rates typically _____ borrowing,ceteris paribus.

An increase in the demand for borrowing will cause the equilibrium quantity of saving to:

Time preference is the desire to:

Which of the following institutions channels loanable funds from savers to borrowers?

Bond prices and bond interest rates move:

Use the following to answer questions Figure: Market for Loanable Funds -(Figure: Market for Loanable Funds)Equilibrium in this market for loanable funds occurs when the interest rate is:

People with a high time preference are less likely to:

Use the following to answer questions Figure: Loanable Funds Contraction -(Figure: Loanable Funds Contraction)Which of the following reasons could cause the supply curve for loanable funds to shift to the left from SLF to S1LF in the figure?

The buyer of a bond is a borrower.

If the government imposes an interest rate ceiling below the equilibrium interest rate in the loanable funds market,then:

When a family's income becomes more uncertain,we expect its saving to:

An increase in domestic borrowing today will lead to an increase in the supply of loanable funds and an increase in domestic interest rates.

Use the following to answer questions Figure: Loanable Funds Contraction -(Figure: Loanable Funds Contraction)In the accompanying figure,if the supply of loanable funds decreases from SLF to S1LF and the demand for loanable funds remains at DLF,the equilibrium interest rate will:

The shadow banking system includes each of the following except:

An increase in life expectancy should cause saving in the United States to:

Use the following to answer questions Figure: Market for Loanable Funds -(Figure: Market for Loanable Funds)If the interest rate is 3% in this market for loanable funds,then:

When a person's income is greater than her spending on consumption goods,then she is:

In the lifecycle theory of savings,the sequence of behavior is as follows:

The Big Ideas

The Power of Trade

Supply and Demand

Equilibrium- How Supply and Demand

Price Ceilings and Floors

GDP and the Measurement of Progress

The Wealth of Nations and Economic Growth

Growth,capital Accumulation

Stock Markets and Personal Finance

Unemployment and Labor Force Participation

Inflation and the Quantity Theory of Money

Business Fluctuations

Transmission and Amplification Mechanisms

The Federal Reserve System

Monetary Policy

The Federal Budget- Taxes and Spending

Fiscal Policy

International Trade

International Finance

Political Economy and Public Choice

Filters

Use the following to answer questions Figure: Loanable Funds Contraction -(Figure: Loanable Funds Contraction)Which of the following reasons could cause the supply curve for loanable funds to shift to the left from S_LF to S¹_LF in the figure?

Use the following to answer questions Figure: Loanable Funds Contraction -(Figure: Loanable Funds Contraction)In the accompanying figure,if the supply of loanable funds decreases from S_LFto S¹_LF and the demand for loanable funds remains at D_LF,the equilibrium interest rate will: