Question 1

A nonprice determinant of the supply of loanable funds would be

Accepted Answer

A)   the interest rate.
B)   business future profit expectations.
C)   governments running higher deficits.
D)   a change in the level of household time preferences.
E)   better technology.F) B) and E)
G) All of the above

Question 2

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 C)
G) None of the above

Question 3

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds both borrowed and lent)  to fall?

Accepted Answer

A)   Firms are more pessimistic, and governments run fewer deficits.
B)   A baby boom begins, and investor confidence rises.
C)   People have lower time preferences, and governments run larger deficits.
D)   People have lower time preferences, and capital is more productive.
E)   A baby boom begins, and people have higher time preferences.F) All of the above
G) None of the above

Question 4

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 E)
G) All of the above

Question 5

If the U.S. economy experiences a major recession, then

Accepted Answer

A)   the demand for loanable funds will shift right.
B)   the supply of loanable funds will shift right.
C)   the demand for loanable funds will shift left.
D)   the supply of loanable funds will shift left.
E)   both the supply and demand for loanable funds will increase.F) B) and D)
G) B) and C)

Question 6

Which combination of events could have caused the equilibrium interest rate to rise and the equilibrium quantity of loanable funds both borrowed and lent)  to fall?

Accepted Answer

A)   A baby boom begins, and investor confidence falls.
B)   A baby boom begins, and investor confidence rises.
C)   People have lower time preferences, and governments run larger deficits.
D)   People have lower time preferences, and capital is more productive.
E)   A baby boom begins, and people have higher time preferences.F) C) and D)
G) D) and E)

Question 7

Savings represents

Accepted Answer

A)   the demand for loanable funds.
B)   the supply of loanable funds.
C)   the minimum interest rate people are willing to accept i.e., the "reservation" interest rate) .
D)   only funds supplied by foreigners, because Americans don't save.
E)   the willingness of firms to borrow.F) A) and D)
G) B) and C)

Question 8

Why or how might it be said that even though the measured U.S. savings rate is falling, the actual rate may not be falling, but in fact, might even be rising?

Accepted Answer

The measured rate is the percentage of d...

Question 9

If interest rates rise,

Accepted Answer

A)   foreign entities that are borrowers of funds will borrow less.
B)   governments that are savers of funds will save less.
C)   households that are savers of funds will save more.
D)   businesses that are savers of funds will borrow less.
E)   it will reduce consumption smoothing.F) A) and B)
G) D) and E)

Question 10

The supply of loanable funds increases while the demand for loanable funds remains constant. This would cause

Accepted Answer

A)   the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.
B)   the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.
C)   both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase.
D)   the equilibrium interest rate to increase, leading to a new lower equilibrium quantity.
E)   the equilibrium interest rate to increase, but the equilibrium quantity of loanable funds would remain unchanged.F) None of the above
G) C) and D)

Question 11

In a country, very old and very young people spend more than their incomes. Yet in that same country, the people who are middle-aged tend to save for retirement. If this scenario is true, it best describes

Accepted Answer

A)   time preferences.
B)   nominal interest rates.
C)   the demand for loanable funds.
D)   consumption smoothing.
E)   consumption variance.F) A) and B)
G) A) and C)

Question 12

Assuming inflation is positive, the real interest rate

Accepted Answer

A)   must always be larger than the nominal interest rate.
B)   must always be smaller than the nominal interest rate.
C)   could be larger or smaller than the nominal interest rate, depending on the rate of inflation.
D)   would normally be larger than the nominal interest rate.
E)   increases exactly as fast as inflation.F) B) and E)
G) A) and D)

Question 13

The Fisher equation relates

Accepted Answer

A)   time preferences to the level of borrowing.
B)   nominal interest rates to the level of borrowing.
C)   real interest rates to the level of borrowing.
D)   real interest rates, nominal interest rates, and inflation.
E)   real interest rates, nominal interest rates, and the level of saving.F) B) and D)
G) C) and D)

Question 14

Those with the least patience

Accepted Answer

A)   have the greatest time preference.
B)   have the least time preference.
C)   will demand a higher nominal interest rate but not a higher real rate.
D)   will save the most.
E)   will engage in the most consumption smoothing.F) B) and D)
G) A) and D)

Question 15

Lenders in the loanable funds market consist of

Accepted Answer

A)   foreign governments, the domestic government, and households.
B)   households and foreign entities.
C)   mutual fund firms, stock exchanges, and banks.
D)   firms and governments.
E)   arbitrage companies, banks, and firms.F) B) and E)
G) C) and D)

Question 16

We could best describe the

Accepted Answer

A)   nominal rate of interest as the inflation-adjusted rate of interest.
B)   real rate of interest as the inflation-adjusted rate of interest.
C)   rate of inflation as the nominal interest rate.
D)   loanable funds market as the market where only governments make loans.
E)   supply of loanable funds as upward sloping, with the slope equaling the rate of inflation.F) C) and E)
G) A) and E)

Question 17

Refer to the following graph to answer the next questions:
 
-Assuming the figure represents the market for loanable funds, it would be true that

Accepted Answer

A)   line 1 represents savings supply) , and line 2 represents investment demand) .
B)   the vertical axis represents the interest rate, and the distance between points C and D represents the surplus of loanable funds at interest rate A.
C)   line 1 represents investment demand, and line 2 represents savings.
D)   the vertical axis represents the quantity of funds lent and borrowed, whereas the distance between points C and D represents the shortage of loanable funds at interest rate A.
E)   line 1 represents the interest rate, and line 2 represents the quantity of savings.F) B) and D)
G) A) and D)

Question 18

Every _______requires a_______ .

Accepted Answer

A)   savings dollar; foreign investment dollar
B)   investment dollar; savings dollar
C)   dollar of loanable funds; dollar of wages earned
D)   dollar of government borrowing; dollar of foreign borrowing
E)   dollar of exports; dollar of importsF) C) and E)
G) B) and E)

Question 19

Assume inflation is occurring in a nation; the implications)

Accepted Answer

A)   are that both real and nominal interest rates are positive.
B)   are that both real and nominal interest rates are negative.
C)   is that the nominal interest rate exceeds the real interest rate.
D)   is that the real rate of interest exceeds the nominal rate of interest.
E)   is that time preferences in the nation have risen.F) C) and D)
G) A) and E)

Question 20

A bond is an instrument that allows the bearer to earn interest. The bearer would be best described as

Accepted Answer

A)   a demander of loanable funds.
B)   a supplier of loanable funds.
C)   a financial intermediary.
D)   one who borrows.
E)   both a financial intermediary and a borrower.F) A) and C)
G) A) and B)

Exam 9: Savings, Interest Rates, and the Market for Loanable Funds

If the U.S. economy experiences a major recession, then

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Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds both borrowed and lent) to fall?

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Savings represents

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Lenders in the loanable funds market consist of

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Those with the least patience

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If interest rates rise,

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Assume inflation is occurring in a nation; the implications)

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A nonprice determinant of the supply of loanable funds would be

Correct AnswerverifiedShow Answer

The Fisher equation relates

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Every dollar borrowed

Correct AnswerverifiedShow Answer

Why or how might it be said that even though the measured U.S. savings rate is falling, the actual rate may not be falling, but in fact, might even be rising?

Correct AnswerverifiedThe measured rate is the percentage of d...View AnswerShow Answer

In a country, very old and very young people spend more than their incomes. Yet in that same country, the people who are middle-aged tend to save for retirement. If this scenario is true, it best describes

Correct AnswerverifiedShow Answer

A bond is an instrument that allows the bearer to earn interest. The bearer would be best described as

Correct AnswerverifiedShow Answer

Which combination of events could have caused the equilibrium interest rate to rise and the equilibrium quantity of loanable funds both borrowed and lent) to fall?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, it would be true that

Correct AnswerverifiedShow Answer

The supply of loanable funds increases while the demand for loanable funds remains constant. This would cause

Correct AnswerverifiedShow Answer

Every _______requires a_______ .

Correct AnswerverifiedShow Answer

We could best describe the

Correct AnswerverifiedShow Answer

Assuming inflation is positive, the real interest rate

Correct AnswerverifiedShow Answer

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The measured rate is the percentage of d...
View Answer

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Every _requires a_ .

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