Question 1

Junk bonds are bonds:

Accepted Answer

A)  issued by garbage companies. 
B)  backed by subprime mortgages. 
C)  rated lower than BBB-. 
D)  that mature 30 years into the future. 
A)  issued by garbage companies. 
B)  backed by subprime mortgages. 
C)  rated lower than BBB-. 
D)  that mature 30 years into the future.

Question 2

Why is the demand for loanable funds downward sloping?

Accepted Answer

A)  People save less when the interest rate is low. 
B)  More people borrow money when interest rates are low than when they are high. 
C)  Fewer investment projects have returns that can beat higher interest rates,so people are more willing to invest at higher interest rates. 
D)  People save more when the interest rate is high. 
A)  People save less when the interest rate is low. 
B)  More people borrow money when interest rates are low than when they are high. 
C)  Fewer investment projects have returns that can beat higher interest rates,so people are more willing to invest at higher interest rates. 
D)  People save more when the interest rate is high.

Question 3

Use the following to answer questions 
Figure: Market for Loanable Funds
 
-(Figure: Market for Loanable Funds)If the interest rate is 5% in this market for loanable funds,then:

Accepted Answer

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

Question 4

The decrease in private consumption and investment that occurs when the government borrows more is called:

Accepted Answer

A)  collateral damage. 
B)  the substitution effect. 
C)  the wealth effect. 
D)  the crowding-out effect. 
A)  collateral damage. 
B)  the substitution effect. 
C)  the wealth effect. 
D)  the crowding-out effect.

Question 5

The buyer of a bond is a lender.

Accepted Answer

A) True 
 B)False

Question 6

If the government decides to drastically increase spending (and by extension the budget deficit)during an economic recession,it will increase the _____ loanable funds and _____ equilibrium interest rates.

Accepted Answer

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

Question 7

Which of the following is NOT a direct result of poorly developed or corrupt financial intermediaries within a country?

Accepted Answer

A)  smaller markets for loans 
B)  higher budget deficits 
C)  less effective use of savings 
D)  less investment 
A)  smaller markets for loans 
B)  higher budget deficits 
C)  less effective use of savings 
D)  less investment

Question 8

Time preference is the same from person to person.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is NOT considered saving?

Accepted Answer

A)  making a deposit in a savings account at the bank 
B)  buying a share of stock in a computer company 
C)  buying a corporate bond 
D)  paying tuition for a college education 
A)  making a deposit in a savings account at the bank 
B)  buying a share of stock in a computer company 
C)  buying a corporate bond 
D)  paying tuition for a college education

Question 10

-The loanable funds market is the market where:

Accepted Answer

A)  the government brings buyers and sellers together to finance capital expenditures. 
B)  equilibrium interest rates are determined by the actions of borrowers and lenders. 
C)  stocks are bought and sold. 
D)  overall investment rates in the economy are determined. 
A)  the government brings buyers and sellers together to finance capital expenditures. 
B)  equilibrium interest rates are determined by the actions of borrowers and lenders. 
C)  stocks are bought and sold. 
D)  overall investment rates in the economy are determined.

Question 11

Individual savings contributes to:

Accepted Answer

A)  the supply of loanable funds. 
B)  the demand for loanable funds. 
C)  both the supply of loanable funds and the demand for loanable funds. 
D)  neither the supply of loanable funds nor the demand for loanable funds. 
A)  the supply of loanable funds. 
B)  the demand for loanable funds. 
C)  both the supply of loanable funds and the demand for loanable funds. 
D)  neither the supply of loanable funds nor the demand for loanable funds.

Question 12

An increase in government borrowing will cause the:

Accepted Answer

A)  demand for borrowing to shift outward. 
B)  demand for borrowing to shift inward. 
C)  supply of savings to shift outward. 
D)  supply of savings to shift inward. 
A)  demand for borrowing to shift outward. 
B)  demand for borrowing to shift inward. 
C)  supply of savings to shift outward. 
D)  supply of savings to shift inward.

Question 13

An initial public offering is:

Accepted Answer

A)  the first time a corporation sells stock to the public in order to raise capital. 
B)  a sophisticated IOU that documents who owes how much and when payment must be made. 
C)  something of value that by agreement becomes the property of the lender if the borrower defaults. 
D)  the decrease in private consumption and investment that occurs when government borrows more. 
A)  the first time a corporation sells stock to the public in order to raise capital. 
B)  a sophisticated IOU that documents who owes how much and when payment must be made. 
C)  something of value that by agreement becomes the property of the lender if the borrower defaults. 
D)  the decrease in private consumption and investment that occurs when government borrows more.

Question 14

A result of an increase in consumption without any change in income is an increase in the equilibrium interest rate.

Accepted Answer

A) True 
 B)False

Question 15

The demand to borrow shows the relationship between borrowing and:

Accepted Answer

A)  income. 
B)  investment. 
C)  age 
D)  the interest rate. 
A)  income. 
B)  investment. 
C)  age 
D)  the interest rate.

Question 16

The consumption-smoothing theory implies that a country whose people have a very low life expectancy has:

Accepted Answer

A)  low consumption. 
B)  high investment. 
C)  a low savings rate. 
D)  a high borrowing rate. 
A)  low consumption. 
B)  high investment. 
C)  a low savings rate. 
D)  a high borrowing rate.

Question 17

Investment occurs when a person's income exceeds her spending on consumption goods.

Accepted Answer

A) True 
 B)False

Question 18

An increase in the supply of savings increases borrowing and reduces the interest rate.

Accepted Answer

A) True 
 B)False

Question 19

If individuals become more impatient,what will happen in the market for loanable funds?

Accepted Answer

A)  The supply of loanable funds will decrease,interest rates will fall,and the quantity of saving and borrowing will increase. 
B)  The supply of loanable funds will increase,interest rates will rise,and the quantity of saving and borrowing will decrease. 
C)  The supply of loanable funds will increase,interest rates will fall,and the quantity of saving and borrowing will increase. 
D)  The supply of loanable funds will decrease,interest rates will rise,and the quantity of saving and borrowing will decrease. 
A)  The supply of loanable funds will decrease,interest rates will fall,and the quantity of saving and borrowing will increase. 
B)  The supply of loanable funds will increase,interest rates will rise,and the quantity of saving and borrowing will decrease. 
C)  The supply of loanable funds will increase,interest rates will fall,and the quantity of saving and borrowing will increase. 
D)  The supply of loanable funds will decrease,interest rates will rise,and the quantity of saving and borrowing will decrease.

Question 20

The source of the supply of loanable funds in the loanable funds market is banks and other financial intermediaries.

Accepted Answer

A) True 
 B)False

Exam 9: Saving,investment,and the Financial System

Junk bonds are bonds:

Why is the demand for loanable funds downward sloping?

Use the following to answer questions Figure: Market for Loanable Funds -(Figure: Market for Loanable Funds)If the interest rate is 5% in this market for loanable funds,then:

The decrease in private consumption and investment that occurs when the government borrows more is called:

The buyer of a bond is a lender.

If the government decides to drastically increase spending (and by extension the budget deficit)during an economic recession,it will increase the _____ loanable funds and _____ equilibrium interest rates.

Which of the following is NOT a direct result of poorly developed or corrupt financial intermediaries within a country?

Time preference is the same from person to person.

Which of the following is NOT considered saving?

-The loanable funds market is the market where:

Individual savings contributes to:

An increase in government borrowing will cause the:

An initial public offering is:

A result of an increase in consumption without any change in income is an increase in the equilibrium interest rate.

The demand to borrow shows the relationship between borrowing and:

The consumption-smoothing theory implies that a country whose people have a very low life expectancy has:

Investment occurs when a person's income exceeds her spending on consumption goods.

An increase in the supply of savings increases borrowing and reduces the interest rate.

If individuals become more impatient,what will happen in the market for loanable funds?

The source of the supply of loanable funds in the loanable funds market is banks and other financial intermediaries.

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

If the government decides to drastically increase spending (and by extension the budget deficit)during an economic recession,it will increase the _ loanable funds and _ equilibrium interest rates.