Question 1

Which of the following could explain a decrease in the interest rate and an increase in the equilibrium quantity of investment?

Accepted Answer

A) the supply of loanable funds shifted right. 
B) the supply of loanable funds shifted left. 
C) the demand for loanable funds shifted right. 
D) the demand for loanable funds shifted left.

Question 2

If the demand for loanable funds shifts to the right,then the equilibrium interest rate

Accepted Answer

A) and quantity of loanable funds rises. 
B) and quantity of loanable funds falls. 
C) rises and the quantity of loanable funds falls. 
D) falls and the quantity of loanable funds rises.

Question 3

If there is a shortage in the market for loanable funds,what happens to desired saving and desired investment as the interest rate moves to its equilibrium value?

Accepted Answer

A) desired saving and desired investment both fall 
B) desired saving and desired investment both rise 
C) desired saving falls and desired investment rises 
D) desired saving rises and desired investment falls

Question 4

Suppose that Congress were to institute an investment tax credit.What would happen in the market for loanable funds?

Accepted Answer

A) The demand for loanable funds would shift left. 
B) The supply of loanable funds would shift left. 
C) The demand for loanable funds would shift right. 
D) The supply of loanable funds would shift right.

Question 5

If Congress instituted an investment tax credit,the equilibrium quantity of loanable funds would

Accepted Answer

A) rise. 
B) fall. 
C) be unchanged. 
D) move in an uncertain direction.

Question 6

The first element of a financial crisis is

Accepted Answer

A) inflation. 
B) a decline in confidence in financial institutions. 
C) a relaxation of rules and regulations that pertain to the financial system. 
D) a large decline in some asset prices.

Question 7

Suppose in some country that the first $5,000 of interest income is exempt from income tax.If the government then removed this exemption

Accepted Answer

A) the interest rate and investment would rise. 
B) the interest rate would rise and investment would fall. 
C) the interest rate would fall and investment would rise. 
D) the interest rate and investment would fall.

Question 8

When tax code changes reduce investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Accepted Answer

The answer of When tax code changes reduce investment incentives,...

Question 9

If there is surplus of loanable funds,then

Accepted Answer

A) the supply for loanable funds shifts right and the demand shifts left. 
B) the supply for loanable funds shifts left and the demand shifts right. 
C) neither curve shifts,but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. 
D) neither curve shifts,but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.

Question 10

List three characteristics of a bond that would make its interest rate higher than otherwise.

Accepted Answer

The answer of List three characteristics of a bond that...

Question 11

Suppose the government deficit increases,but the interest rate remains the same.Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

A) The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. 
B) Because they are optimistic about the future of the economy,firms desire to borrow more to purchase physical capital. 
C) Consumers decide to decrease consumption and work more. 
D) All of the above could explain why the interest rate would be unchanged.

Question 12

When tax code changes increase investment incentives, the _____ for loanable funds curve shifts to the _____. This results in a(n) _____ in the interest rate and a(n) _____ in investment.

Accepted Answer

The answer of When tax code changes increase investment incentives,...

Question 13

If the nominal interest rate is 7 percent and the real interest rate is 2 percent,then what is the inflation rate?

Accepted Answer

A) 9.0 percent 
B) 5 percent 
C) 3.5 percent 
D) None of the above is correct.

Question 14

Suppose Congress institutes an investment tax credit.What would happen in the market for loanable funds?

Accepted Answer

A) The interest rate and investment would fall. 
B) The interest rate and investment would rise. 
C) The interest rate would rise and investment would fall. 
D) None of the above is necessarily correct.

Question 15

Suppose government expenditures on goods and services increase,transfers are unchanged,and taxes rise by less than the increase in expenditures.These changes in the government's budget cause

Accepted Answer

A) both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. 
B) both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise. 
C) the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. 
D) the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise.

Question 16

If Congress increased the tax rate on interest income,investment

Accepted Answer

A) would increase and saving would decrease. 
B) would decrease and saving would increase. 
C) and saving would increase. 
D) and saving would decrease.

Question 17

Other things the same,an increase in the interest rate

Accepted Answer

A) would shift the demand for loanable funds to the right. 
B) would shift the demand for loanable funds to the left. 
C) would increase the quantity of loanable funds demanded. 
D) would decrease the quantity of loanable funds demanded.

Question 18

If the demand for loanable funds shifts to the right,then initially there is a

Accepted Answer

A) surplus so the interest rate will fall. 
B) surplus so the interest rate will rise. 
C) shortage so the interest rate will fall. 
D) shortage so the interest rate will rise.

Question 19

The final element of a financial crisis is

Accepted Answer

A) an economic downturn. 
B) a decline in confidence in financial institutions. 
C) declining prices of real estate or other assets. 
D) a vicious circle.

Question 20

Figure 26-4.On the horizontal axis of the graph,L represents the quantity of loanable funds in billions of dollars. 
-Refer to Figure 26-4.Regard the position of the Supply curve as fixed,as on the graph.If the real interest rate is 8 percent,the inflation rate is 3 percent,and the market for loanable funds is in equilibrium,then the position of the demand-for-loanable-funds curve must be

Accepted Answer

A)  D1 . 
B)  D2. 
C) between D1 and D2. 
D) to the right of D2.

Exam 13: Saving Investment and the Financial System: The Market for Loanable Funds