Question 1

The federal government's demand for funds is ________, and municipal governments' demand for funds is ____________.

Accepted Answer

A) interest-inelastic; very interest-inelastic 
B) interest-elastic; interest-elastic 
C) interest-inelastic; somewhat interest-elastic 
D) interest-elastic; somewhat interest-inelastic

Question 2

If interest rates are ____, ____ projects will have expected returns that exceed a business's particular required rate of return.

Accepted Answer

A) higher; more 
B) lower; more 
C) lower; no 
D) None of these are correct.

Question 3

At any given point in time, households would demand a ____ quantity of loanable funds at ____ rates of interest.

Accepted Answer

A) greater; higher 
B) greater; lower 
C) smaller; lower 
D) None of these are correct.

Question 4

Which of the following is a valid representation of the Fisher effect?

Accepted Answer

A) i = E (INF)+ iR 
B) iR = E (INF)+ i 
C) E (INF)= i + iR 
D) None of these are correct.

Question 5

If economic conditions become less favorable, then

Accepted Answer

A) expected cash flows on various projects will increase. 
B) the required rate of return on projects will increase. 
C) there will be additional acceptable business projects. 
D) there will be a decreased demand by business for loanable funds.

Question 6

The equilibrium interest rate should

Accepted Answer

A) fall when the aggregate supply of funds exceeds the aggregate demand for funds. 
B) rise when the aggregate supply of funds exceeds the aggregate demand for funds. 
C) fall when the aggregate demand for funds exceeds the aggregate supply of funds. 
D) rise when the aggregate demand for funds equals the aggregate supply of funds. 
E) rise when the aggregate supply of funds exceeds the aggregate demand for funds AND fall when the aggregate demand for funds exceeds the aggregate supply of funds.

Question 7

When Japanese interest rates rise, and exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will ____, and U.S. interest rates will ____.

Accepted Answer

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

Question 8

The equilibrium interest rate

Accepted Answer

A) equates the aggregate demand for loanable funds with the aggregate supply of loanable funds. 
B) equates the elasticity of the aggregate demand for and supply of loanable funds. 
C) decreases as the aggregate supply of loanable funds decreases. 
D) increases as the aggregate demand for loanable funds decreases.

Question 9

The required return to implement a given business project will be ____ if interest rates are lower. This implies that businesses will demand a ____ quantity of loanable funds when interest rates are lower. ​

Accepted Answer

A) greater; lower 
B) lower; greater 
C) lower; lower 
D) greater; greater

Question 10

The expected impact of an increased expansion by businesses is an ____ shift in the demand schedule and ____ in the supply schedule. ​

Accepted Answer

A) inward; an inward shift 
B) inward; an outward shift 
C) outward; an inward shift 
D) outward; no obvious change

Question 11

If the aggregate demand for loanable funds increases without a corresponding ____ in aggregate supply, there will be a ____ of loanable funds. ​

Accepted Answer

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

Question 12

At any point in time, households and businesses demand a greater quantity of loanable funds at lower rates of interest.

Accepted Answer

A) True 
 B)False

Question 13

If foreign interest rates fall, foreign firms and governments would likely reduce their demand for U.S. funds.

Accepted Answer

A) True 
 B)False

Question 14

The crowding-out effect occurs when

Accepted Answer

A) foreign investors crowd out U.S. investors in the market for loanable funds. 
B) the federal government's demand for loanable funds due to a higher budget deficit crowds out the private demand in the market for loanable funds. 
C) institutional investors crowd out individual investors in the market for loanable funds. 
D) firms and municipal governments crowd out households in the market for loanable funds.

Question 15

According to the Fisher effect, when the inflation rate is lower than anticipated, the real interest rate is relatively low.

Accepted Answer

A) True 
 B)False

Question 16

The quantity of loanable funds supplied is normally

Accepted Answer

A) highly interest-elastic. 
B) more interest-elastic than the demand for loanable funds. 
C) less interest-elastic than the demand for loanable funds. 
D) equally as interest-elastic as the demand for loanable funds. 
E) highly interest-elastic AND more interest-elastic than the demand for loanable funds.

Question 17

If the real interest rate was negative for a period of time, then

Accepted Answer

A) inflation is expected to exceed the nominal interest rate in the future. 
B) inflation is expected to be less than the nominal interest rate in the future. 
C) actual inflation was less than the nominal interest rate during that period of time . 
D) actual inflation was greater than the nominal interest rate during that period of time .

Question 18

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place ____ pressure on Canadian interest rates and ____ pressure on U.S. interest rates. ​

Accepted Answer

A) upward; upward 
B) upward; downward 
C) downward; downward 
D) downward; upward

Question 19

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S. interest rates. ​

Accepted Answer

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

Question 20

The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.

Accepted Answer

A) Fisher effect 
B) loanable funds theory 
C) real interest rate 
D) None of these are correct.

Exam 2: Determination of Interest Rates

The federal government's demand for funds is , and municipal governments' demand for funds is ____.

If interest rates are , projects will have expected returns that exceed a business's particular required rate of return.

At any given point in time, households would demand a quantity of loanable funds at rates of interest.

Which of the following is a valid representation of the Fisher effect?

If economic conditions become less favorable, then

The equilibrium interest rate should

When Japanese interest rates rise, and exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will , and U.S. interest rates will .

The equilibrium interest rate

The required return to implement a given business project will be if interest rates are lower. This implies that businesses will demand a quantity of loanable funds when interest rates are lower.

The expected impact of an increased expansion by businesses is an shift in the demand schedule and in the supply schedule.

If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be a of loanable funds.

At any point in time, households and businesses demand a greater quantity of loanable funds at lower rates of interest.

If foreign interest rates fall, foreign firms and governments would likely reduce their demand for U.S. funds.

The crowding-out effect occurs when

According to the Fisher effect, when the inflation rate is lower than anticipated, the real interest rate is relatively low.

The quantity of loanable funds supplied is normally

If the real interest rate was negative for a period of time, then

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place pressure on Canadian interest rates and pressure on U.S. interest rates.

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to and should place pressure on U.S. interest rates.

The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.

Exam 2: Determination of Interest Rates

The federal government's demand for funds is ________, and municipal governments' demand for funds is ____________.

If interest rates are ____, ____ projects will have expected returns that exceed a business's particular required rate of return.

At any given point in time, households would demand a ____ quantity of loanable funds at ____ rates of interest.

Which of the following is a valid representation of the Fisher effect?

If economic conditions become less favorable, then

The equilibrium interest rate should

When Japanese interest rates rise, and exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will ____, and U.S. interest rates will ____.

The equilibrium interest rate

The required return to implement a given business project will be ____ if interest rates are lower. This implies that businesses will demand a ____ quantity of loanable funds when interest rates are lower. ​

The expected impact of an increased expansion by businesses is an ____ shift in the demand schedule and ____ in the supply schedule. ​

If the aggregate demand for loanable funds increases without a corresponding ____ in aggregate supply, there will be a ____ of loanable funds. ​

At any point in time, households and businesses demand a greater quantity of loanable funds at lower rates of interest.

If foreign interest rates fall, foreign firms and governments would likely reduce their demand for U.S. funds.

The crowding-out effect occurs when

According to the Fisher effect, when the inflation rate is lower than anticipated, the real interest rate is relatively low.

The quantity of loanable funds supplied is normally

If the real interest rate was negative for a period of time, then

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place ____ pressure on Canadian interest rates and ____ pressure on U.S. interest rates. ​

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S. interest rates. ​

The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.

The federal government's demand for funds is , and municipal governments' demand for funds is ____.

If interest rates are , projects will have expected returns that exceed a business's particular required rate of return.

At any given point in time, households would demand a quantity of loanable funds at rates of interest.

When Japanese interest rates rise, and exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will , and U.S. interest rates will .

The required return to implement a given business project will be if interest rates are lower. This implies that businesses will demand a quantity of loanable funds when interest rates are lower.

The expected impact of an increased expansion by businesses is an shift in the demand schedule and in the supply schedule.

If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be a of loanable funds.

Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth, that could place pressure on Canadian interest rates and pressure on U.S. interest rates.

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to and should place pressure on U.S. interest rates.