Question 1

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

Accepted Answer

A)  the nominal interest rate rises by 4 percentage points. 
B)  the nominal interest rate is constant. 
C)  the nominal interest rate falls by 4 percentage points. 
D)  the nominal interest rate equals 3 percent. 
A)  the nominal interest rate rises by 4 percentage points. 
B)  the nominal interest rate is constant. 
C)  the nominal interest rate falls by 4 percentage points. 
D)  the nominal interest rate equals 3 percent.

Question 2

At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled

Accepted Answer

A)  6 machines. 
B)  1 machine. 
C)  2 machines. 
D)  3 machines. 
A)  6 machines. 
B)  1 machine. 
C)  2 machines. 
D)  3 machines.

Question 3

If the real interest rate is 4 percent and the inflation rate is 3 percent, the nominal interest rate is approximately

Accepted Answer

A)  7 percent. 
B)  12 percent. 
C)  1.33 percent. 
D)  1 percent. 
A)  7 percent. 
B)  12 percent. 
C)  1.33 percent. 
D)  1 percent.

Question 4

In January 2009, suppose that a share of stock in Meyer, Inc. was worth $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During 2009, the price of a share of Meyer's stock increased to $100. The interest rate paid on the share percent.

Accepted Answer

A)  4 
B)  0.02 
C)  2 
D)  25 
A)  4 
B)  0.02 
C)  2 
D)  25

Question 5

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

Accepted Answer

A)  you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan. 
B)  the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it. 
C)  you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan. 
D)  the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it. 
A)  you must have earned a nominal interest rate of 10 percent to maintain the purchasing power of your loan. 
B)  the purchasing power of your loan has risen over the year regardless of the interest rate at which you lent it. 
C)  you must have earned a nominal interest rate of 5 percent to maintain the purchasing power of your loan. 
D)  the purchasing power of your loan has remained constant over the year regardless of the interest rate at which you lent it.

Question 6

If the government runs a budget deficit, then

Accepted Answer

A)  national saving cannot fund investment. 
B)  part of household and business saving finances the deficit. 
C)  national saving is negative. 
D)  household but not business saving must pay for the deficit. 
A)  national saving cannot fund investment. 
B)  part of household and business saving finances the deficit. 
C)  national saving is negative. 
D)  household but not business saving must pay for the deficit.

Question 7

Which of the following is FALSE about saving?

Accepted Answer

A)  Saving equals wealth minus consumption expenditures. 
B)  Saving is the source of funds used to finance investment. 
C)  Saving adds to wealth. 
D)  Income left after paying taxes can either be consumed or saved. 
A)  Saving equals wealth minus consumption expenditures. 
B)  Saving is the source of funds used to finance investment. 
C)  Saving adds to wealth. 
D)  Income left after paying taxes can either be consumed or saved.

Question 8

How does the real interest affect households' decisions about saving?

Accepted Answer

All disposable income is either used for

Question 9

According to the Ricardo- Barro effect, government deficits

Accepted Answer

A)  lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
B)  lead to a rise in the equilibrium real interest rate, crowding out investment. 
C)  lead to simultaneous increases in private saving and no effect on the equilibrium real interest rate and investment. 
D)  lead to a fall in the equilibrium real interest rate and a rise in investment. 
A)  lead to simultaneous decreases in private saving and decreases in the equilibrium real interest rate and investment. 
B)  lead to a rise in the equilibrium real interest rate, crowding out investment. 
C)  lead to simultaneous increases in private saving and no effect on the equilibrium real interest rate and investment. 
D)  lead to a fall in the equilibrium real interest rate and a rise in investment.

Question 10

In 2008, Australia had a government budget surplus of $21.7 billion. This budget surplus shifts the demand for loanable funds curve

Accepted Answer

A)  rightward and creates a crowding- out effect. 
B)  leftward and lowers the real interest rate. 
C)  leftward and creates a crowding- out effect. 
D)  rightward and creates a Ricardo- Barro effect. 
A)  rightward and creates a crowding- out effect. 
B)  leftward and lowers the real interest rate. 
C)  leftward and creates a crowding- out effect. 
D)  rightward and creates a Ricardo- Barro effect.

Question 11

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then

Accepted Answer

A)  there is a shortage of loanable funds. 
B)  there is neither a shortage nor surplus of loanable funds. 
C)  prices rise and inflation occurs. 
D)  there is a surplus of loanable funds. 
A)  there is a shortage of loanable funds. 
B)  there is neither a shortage nor surplus of loanable funds. 
C)  prices rise and inflation occurs. 
D)  there is a surplus of loanable funds.

Question 12

If the Ricardo- Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .

Accepted Answer

A)  increase; remains the same 
B)  decrease; remains the same 
C)  decrease; increases 
D)  increase; falls 
A)  increase; remains the same 
B)  decrease; remains the same 
C)  decrease; increases 
D)  increase; falls

Question 13

In the absence of a Ricardo- Barro effect, a government budget deficit the demand for loanable funds, _ the real interest rate, and investment.

Accepted Answer

A)  decreases; increases; increases 
B)  increases; decreases; crowds out 
C)  increases; decreases; increases 
D)  decreases; increases; crowds out 
A)  decreases; increases; increases 
B)  increases; decreases; crowds out 
C)  increases; decreases; increases 
D)  decreases; increases; crowds out

Question 14

If the economy's capital stock decreases over time,

Accepted Answer

A)  net investment is positive. 
B)  depreciation exceeds gross investment. 
C)  depreciation is less than zero. 
D)  gross investment equals net investment. 
A)  net investment is positive. 
B)  depreciation exceeds gross investment. 
C)  depreciation is less than zero. 
D)  gross investment equals net investment.

Question 15

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the interest rate rises?

Accepted Answer

A)  The supply of loanable funds curve shifts leftward to a curve such as SLF1. 
B)  The supply of loanable funds curve shifts rightward to a curve such as SLF2. 
C)  There is a movement to a point such as b on supply of loanable funds curve SLF0. 
D)  none of the above 
A)  The supply of loanable funds curve shifts leftward to a curve such as SLF1. 
B)  The supply of loanable funds curve shifts rightward to a curve such as SLF2. 
C)  There is a movement to a point such as b on supply of loanable funds curve SLF0. 
D)  none of the above

Question 16

Which of the following is TRUE regarding the real interest rate?
I. The real interest rate is the return on capital.
II. The real interest rate equals the nominal interest rate adjusted for inflation.

Accepted Answer

A)  I 
B)  II 
C)  both I and II 
D)  neither I nor II 
A)  I 
B)  II 
C)  both I and II 
D)  neither I nor II

Question 17

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the real interest rate rises?

Accepted Answer

A)  Nothing; the economy would remain at point a. 
B)  The supply of loanable funds curve would shift leftward to a curve such as SLF1. 
C)  The supply of loanable funds curve would shift rightward to a curve such as SLF2. 
D)  There would be a movement to a point such as b on supply of loanable funds curve SLF0. 
A)  Nothing; the economy would remain at point a. 
B)  The supply of loanable funds curve would shift leftward to a curve such as SLF1. 
C)  The supply of loanable funds curve would shift rightward to a curve such as SLF2. 
D)  There would be a movement to a point such as b on supply of loanable funds curve SLF0.

Question 18

If the nominal interest rate is 11 percent and the inflation rate is 9 percent, then the real interest rate is approximately

Accepted Answer

A)  2 percent. 
B)  18 percent. 
C)  4 percent. 
D)  20 percent. 
A)  2 percent. 
B)  18 percent. 
C)  4 percent. 
D)  20 percent.

Question 19

If the real interest rate is below the equilibrium real interest rate,

Accepted Answer

A)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. 
B)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. 
C)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall. 
D)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise. 
A)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise. 
B)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will fall. 
C)  borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will fall. 
D)  lenders will be unable to find borrowers willing to borrow all of the available funds and the real interest rate will rise.

Question 20

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then
)

Accepted Answer

A)  the real interest rate will rise 
B)  firms will decrease their investment demand 
C)  the real interest rate will fall 
D)  people will save more 
A)  the real interest rate will rise 
B)  firms will decrease their investment demand 
C)  the real interest rate will fall 
D)  people will save more

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled

If the real interest rate is 4 percent and the inflation rate is 3 percent, the nominal interest rate is approximately

In January 2009, suppose that a share of stock in Meyer, Inc. was worth $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During 2009, the price of a share of Meyer's stock increased to $100. The interest rate paid on the share percent.

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

If the government runs a budget deficit, then

Which of the following is FALSE about saving?

How does the real interest affect households' decisions about saving?

According to the Ricardo- Barro effect, government deficits

In 2008, Australia had a government budget surplus of $21.7 billion. This budget surplus shifts the demand for loanable funds curve

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then

If the Ricardo- Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .

In the absence of a Ricardo- Barro effect, a government budget deficit the demand for loanable funds, _ the real interest rate, and investment.

If the economy's capital stock decreases over time,

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if the interest rate rises?

Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the return on capital. II. The real interest rate equals the nominal interest rate adjusted for inflation.

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if the real interest rate rises?

If the nominal interest rate is 11 percent and the inflation rate is 9 percent, then the real interest rate is approximately

If the real interest rate is below the equilibrium real interest rate,

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then )

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: They Keynesian Model

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

Exam 7: Finance, Saving, and Investment

People know that the inflation rate will decrease from 7 percent to 3 percent. As a result

At the beginning of the year, Tom's Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tom's gross investment for the year totaled

If the real interest rate is 4 percent and the inflation rate is 3 percent, the nominal interest rate is approximately

In January 2009, suppose that a share of stock in Meyer, Inc. was worth $50 and that each share entitled its owner to $2 of Meyer, Inc.'s profit. During 2009, the price of a share of Meyer's stock increased to $100. The interest rate paid on the share percent.

If you lend a dollar for a year and at the end of the year the price level has risen by 10 percent,

If the government runs a budget deficit, then

Which of the following is FALSE about saving?

How does the real interest affect households' decisions about saving?

According to the Ricardo- Barro effect, government deficits

In 2008, Australia had a government budget surplus of $21.7 billion. This budget surplus shifts the demand for loanable funds curve

Suppose the current real interest rate is 4 percent and the equilibrium real interest rate is 3 percent. Then

If the Ricardo- Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .

In the absence of a Ricardo- Barro effect, a government budget deficit the demand for loanable funds, _ the real interest rate, and investment.

If the economy's capital stock decreases over time,

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the interest rate rises?

Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the return on capital. II. The real interest rate equals the nominal interest rate adjusted for inflation.

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the real interest rate rises?

If the nominal interest rate is 11 percent and the inflation rate is 9 percent, then the real interest rate is approximately

If the real interest rate is below the equilibrium real interest rate,

If the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded, then )

What Is Economics

The Economic Problem

Demand and Supply

Measuring Gdp and Economic Growth

Monitoring Jobs and Inflation

Economic Growth

Money, the Price Level, and Inflation

The Exchange Rate and the Balance of Payments

Aggregate Supply and Aggregate Demand

Expenditure Multipliers: They Keynesian Model

U.S. Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Filters

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if the interest rate rises?

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF₀. What happens if the real interest rate rises?