Question 1

Since firms are the primary:

Accepted Answer

A)   demanders of loanable funds, they must borrow from households.
B)   suppliers of loanable funds, they must lend to households.
C)   suppliers of loanable funds, they must lend to the government.
D)   agents of usury, they must be "reined in" by the people.
E)   demanders of loanable funds, they must borrow from the government.F) C) and D)
G) A) and E)

Question 2

T.D.Goneworth,a financial services firm,makes people want their money and want it now.If the firm is successful in advertising this message and convinces people to believe it; then,all else equal,T.D.Goneworth has:

Accepted Answer

A)   caused people to increase their consumption smoothing.
B)   caused people to reduce their time preferences.
C)   equalized the real and nominal rates of interest.
D)   increased the rate of inflation.
E)   caused people to increase their time preferences.F) D) and E)
G) None of the above

Question 3

The gap between the real and nominal interest rate represents:

Accepted Answer

A)   inflation.
B)   the time preference.
C)   the difference from what the lender receives and the borrower pays.
D)   consumption smoothing.
E)   a surplus of loanable funds.F) B) and C)
G) D) and E)

Question 4

Refer to the following graph to answer the questions that follow.
 
-Assuming the figure represents the market for loanable funds,which of the following would represent a general economic collapse in the United States,causing foreigners to become fearful about the U.S.economy?

Accepted Answer

A)   a shift from line 1 to line 4
B)   a shift from line 3 to line 2
C)   a shift from line 2 to line 3
D)   a shift from line 4 to line 1
E)   a new shortage of loanable funds represented by the distance from C to DF) A) and C)
G) B) and E)

Question 5

The demand and supply of loanable funds increase simultaneously.This would cause the:

Accepted Answer

A)   equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.
B)   equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.
C)   equilibrium quantity of loanable funds to increase, but the effect on the equilibrium interest rate would be uncertain.
D)   equilibrium interest rate to increase, but the new equilibrium quantity would be uncertain.
E)   equilibrium interest rate to decrease, but the new equilibrium quantity would be uncertain.F) C) and D)
G) A) and B)

Question 6

Refer to the following graph to answer the questions that follow.
 
-In the figure,at an interest rate of 5%,the:

Accepted Answer

A)   quantity demanded of loanable funds equals the quantity supplied of loanable funds, and equilibrium is reached.
B)   quantity demanded of loanable funds is greater than the quantity supplied of loanable funds, and there is a surplus of loanable funds.
C)   demand for loanable funds is greater than the supply of loanable funds, and there is a shortage of loanable funds.
D)   quantity demanded of loanable funds is greater than the quantity supplied of loanable funds, and there is a shortage of loanable funds.
E)   quantity demanded of loanable funds is less than the quantity supplied of loanable funds, and there is a surplus of loanable funds.F) B) and C)
G) B) and D)

Question 7

As income and wealth rise,we would expect:

Accepted Answer

A)   savings to increase as people save some of the extra wealth or income they have.
B)   savings to fall, since people would spend the extra income or wealth.
C)   interest rates to rise.
D)   foreigners with more wealth to move their assets out of the United States to foreign markets.
E)   people to have a negative rate of time preference.F) B) and C)
G) A) and C)

Question 8

If foreign entities save less and governments run more deficits,we would correctly say that:

Accepted Answer

A)   the new equilibrium quantity of loanable funds would decrease, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original.
B)   the new equilibrium quantity of loanable funds would increase, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original.
C)   the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be higher than the original.
D)   the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be less than the original.
E)   based on this information and because both changes would affect the demand for loanable funds in the opposite way, we would be unable to say anything about the relationship of the new equilibrium interest rate and quantity to the original interest rate and quantity.F) B) and C)
G) A) and D)

Question 9

The government:

Accepted Answer

A)   sets most interest rates.
B)   is a net lender (or supplier of loanable funds) .
C)   is a net borrower (or demander of loanable funds) .
D)   determines the "federal risk premium" portion of commercial interest rates.
E)   earns more interest on treasury bills and other securities when interest rates rise.F) A) and E)
G) A) and D)

Question 10

Every dollar borrowed:

Accepted Answer

A)   represents a dollar leaving the circular flow.
B)   requires a dollar to be saved.
C)   represents a piece of capital.
D)   requires the supply of loanable funds to increase.
E)   causes inflation.F) A) and B)
G) A) and E)

Question 11

Explain the difference in the real and nominal interest rates.Under what conditions would the real exceed the nominal and vice versa? Why does the textbook refer only to the nominal rate rather than the real rate?

Accepted Answer

Using the Fisher equation (Equation 9.1)...

Question 12

If the federal government taxes the interest rate that savers receive:

Accepted Answer

A)   the rate of return to savers increases because of transfer payments and people save more.
B)   the demand for loanable funds increases.
C)   the supply of loanable funds increases.
D)   the supply of loanable funds decreases.
E)   corporations are more willing to borrow.F) None of the above
G) A) and E)

Question 13

You deposit $500.00 into an asset that pays 10% annual interest for three years.At the end of the three years,you would have:

Accepted Answer

A)   $650.00.
B)   $665.50.
C)   about $425.25.
D)   about $1,655.00.
E)   $732.05.F) A) and B)
G) A) and C)

Question 14

If foreign entities save more and businesses become more optimistic about the future,we would correctly say that:

Accepted Answer

A)   the new equilibrium quantity of loanable funds would decrease, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original.
B)   the new equilibrium quantity of loanable funds would increase, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original.
C)   the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be higher than the original.
D)   the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be less than the original.
E)   based on this information and because both changes would affect the demand for loanable funds in the opposite way, we would be unable to say anything about the relationship of the new equilibrium interest rate and quantity to the original interest rate and quantity.F) A) and D)
G) C) and D)

Question 15

The notion of compound interest means that:

Accepted Answer

A)   if you leave a lump sum (some dollar amount)  in the bank for some period, it will only accumulate interest on the principal (the original amount you deposited) .
B)   if you leave a lump sum (some dollar amount)  in the bank for some period, it will accumulate interest both on the principal and on any accumulated interest.
C)   any amount you borrow will accumulate more and more interest, no matter how much you pay back.
D)   the demand for loanable funds is upward-sloping.
E)   your interest will grow, but never at a rate higher than 13%.F) None of the above
G) C) and E)

Question 16

If you deposit money in the bank,in essence,you are:

Accepted Answer

A)   a supplier of funds, since the bank simply is an intermediary between those who want to borrow loanable funds and those who are willing to lend them (depositors) .
B)   a borrower, since all bank funds are borrowed from the federal government.
C)   a supplier of funds, since the bank loans money to the government for daily operations.
D)   neither a borrower nor supplier of funds in this case, since you have neither loaned nor borrowed money.
E)   not a supplier of funds, since mutual funds are the source of lending to firms.F) A) and D)
G) A) and E)

Question 17

If real rates were higher than nominal rates in 2009,the implication is that:

Accepted Answer

A)   inflation was greater than the real rate.
B)   inflation was less than the real rate.
C)   the nominal rate was equal to the real rate.
D)   inflation was negative (deflation was occurring) .
E)   the real rate was equal to the rate of inflation.F) A) and D)
G) B) and C)

Question 18

Based on the relationship between consumption and income,someone in his or her so-called prime earning years is most:

Accepted Answer

A)   likely a saver.
B)   likely a borrower.
C)   likely a foreigner.
D)   concerned about nominal rather than real interest rates.
E)   likely just out of college.F) A) and B)
G) A) and E)

Question 19

The interest rate represents ________ to ________ and ________ to ________.

Accepted Answer

A)   profit; foreign entities; the cost of funds; savers
B)   the cost of funds; corporations; a return; governments
C)   profit; governments; the marginal rate of arbitrage; foreign entities
D)   the cost of borrowing; firms and governments; a return to saving; households
E)   profit; arbitrage companies; loss; firmsF) None of the above
G) C) and D)

Question 20

Assume foreign incomes rise.Ceteris paribus (all things equal) ,this would cause:

Accepted Answer

A)   the demand for loanable funds to increase.
B)   the supply of loanable funds to increase.
C)   both the demand and supply of loanable funds to increase.
D)   both the demand and supply of loanable funds to decrease.
E)   the demand of loanable funds to decrease.F) C) and D)
G) B) and C)

Exam 14: Savings, Investment, and the Market for Loanable Funds

If foreign entities save more and businesses become more optimistic about the future,we would correctly say that:

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Based on the relationship between consumption and income,someone in his or her so-called prime earning years is most:

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Since firms are the primary:

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You deposit $500.00 into an asset that pays 10% annual interest for three years.At the end of the three years,you would have:

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Assume foreign incomes rise.Ceteris paribus (all things equal) ,this would cause:

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The gap between the real and nominal interest rate represents:

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If you deposit money in the bank,in essence,you are:

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The interest rate represents ________ to ________ and ________ to ________.

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Refer to the following graph to answer the questions that follow. -Assuming the figure represents the market for loanable funds,which of the following would represent a general economic collapse in the United States,causing foreigners to become fearful about the U.S.economy?

Correct AnswerverifiedShow Answer

If foreign entities save less and governments run more deficits,we would correctly say that:

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The notion of compound interest means that:

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If the federal government taxes the interest rate that savers receive:

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Explain the difference in the real and nominal interest rates.Under what conditions would the real exceed the nominal and vice versa? Why does the textbook refer only to the nominal rate rather than the real rate?

Correct AnswerverifiedUsing the Fisher equation (Equation 9.1)...View AnswerShow Answer

If real rates were higher than nominal rates in 2009,the implication is that:

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The government:

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Refer to the following graph to answer the questions that follow. -In the figure,at an interest rate of 5%,the:

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The demand and supply of loanable funds increase simultaneously.This would cause the:

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T.D.Goneworth,a financial services firm,makes people want their money and want it now.If the firm is successful in advertising this message and convinces people to believe it; then,all else equal,T.D.Goneworth has:

Correct AnswerverifiedShow Answer

As income and wealth rise,we would expect:

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Every dollar borrowed:

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The interest rate represents to and to .

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Using the Fisher equation (Equation 9.1)...
View Answer

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