Question 1

An increase in the real interest rate increases the quantity of saving because the higher real interest rate

Accepted Answer

A)  increases the opportunity cost of current consumption. 
B)  increases the cost of buying capital. 
C)  reduces taxes because interest payments are tax deductible. 
D)  decreases the benefit of saving. 
A)  increases the opportunity cost of current consumption. 
B)  increases the cost of buying capital. 
C)  reduces taxes because interest payments are tax deductible. 
D)  decreases the benefit of saving.

Question 2

If the real interest rate is 3 percent and the inflation rate is 2 percent, the nominal interest rate is approximately

Accepted Answer

A)  1.5 percent. 
B)  5 percent. 
C)  1 percent. 
D)  - 1 percent. 
A)  1.5 percent. 
B)  5 percent. 
C)  1 percent. 
D)  - 1 percent.

Question 3

The nominal interest rate approximately equals which of the following?

Accepted Answer

A)  the real interest rate plus the growth rate of real GDP 
B)  the real interest rate minus the growth rate of real GDP 
C)  the real interest rate minus the inflation rate 
D)  the real interest rate plus the inflation rate 
A)  the real interest rate plus the growth rate of real GDP 
B)  the real interest rate minus the growth rate of real GDP 
C)  the real interest rate minus the inflation rate 
D)  the real interest rate plus the inflation rate

Question 4

Approximately, the real interest rate the inflation rate _ the nominal interest rate.

Accepted Answer

A)  minus; equals 
B)  equals; minus 
C)  equals; plus 
D)  plus; equals 
A)  minus; equals 
B)  equals; minus 
C)  equals; plus 
D)  plus; equals

Question 5

Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is .

Accepted Answer

A)  greater than 5 percent. 
B)  positive. 
C)  greater than 10 percent. 
D)  greater than 15 percent. 
A)  greater than 5 percent. 
B)  positive. 
C)  greater than 10 percent. 
D)  greater than 15 percent.

Question 6

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

Accepted Answer

A)  Consumers are willing to spend less and hence save more at higher real interest rates. 
B)  Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. 
C)  A lower real interest rate makes more investment projects profitable and hence undertaken. 
D)  All of the above are correct reasons why the demand for loanable funds is negatively related to the real interest rate. 
A)  Consumers are willing to spend less and hence save more at higher real interest rates. 
B)  Interest rate flexibility in financial markets assures an equilibrium in which saving equals investment. 
C)  A lower real interest rate makes more investment projects profitable and hence undertaken. 
D)  All of the above are correct reasons why the demand for loanable funds is negatively related to the real interest rate.

Question 7

The crowding out effect refers to

Accepted Answer

A)  government investment crowding out private investment. 
B)  government spending crowding out private spending. 
C)  private saving crowding out government saving. 
D)  private investment crowding out government saving. 
A)  government investment crowding out private investment. 
B)  government spending crowding out private spending. 
C)  private saving crowding out government saving. 
D)  private investment crowding out government saving.

Question 8

-In the above figure, an increase in the expected profit will result in a movement from point E to

Accepted Answer

A)  point I. 
B)  point H. 
C)  point F. 
D)  point G. 
A)  point I. 
B)  point H. 
C)  point F. 
D)  point G.

Question 9

The table below shows data for the U.S.   Between 2007 and 2008 the real interest rate _ and caused a the demand for loana funds curve.

Accepted Answer

A)  increased; movement up along. 
B)  decreased; leftward shift. 
C)  decreased; movement down along. 
D)  increased; rightward shift. 
A)  increased; movement up along. 
B)  decreased; leftward shift. 
C)  decreased; movement down along. 
D)  increased; rightward shift.

Question 10

A country's investment can be financed by _ .

Accepted Answer

A)  only saving by households and firms 
B)  making exports exceed imports 
C)  national saving and foreign borrowing 
D)  a government budget surplus 
A)  only saving by households and firms 
B)  making exports exceed imports 
C)  national saving and foreign borrowing 
D)  a government budget surplus

Question 11

Which of the following will shift the supply of loanable funds curve leftward?

Accepted Answer

A)  a decrease in disposable income 
B)  a decrease in real wealth 
C)  a decrease in expected future income 
D)  a decrease in the real interest rate 
A)  a decrease in disposable income 
B)  a decrease in real wealth 
C)  a decrease in expected future income 
D)  a decrease in the real interest rate

Question 12

In January 2008, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2008, Tim spent $200,000 on new machines. During 2008, Tim's net investment totalled

Accepted Answer

A)  $1 million. 
B)  $100,000. 
C)  $200,000. 
D)  $300,000. 
A)  $1 million. 
B)  $100,000. 
C)  $200,000. 
D)  $300,000.

Question 13

In November 2008, automobile executives from Ford, GM and Chrysler testified to Congress that their firms needed a $25 billion bailout to prevent bankruptcies. The executives stated that part of the cash would be used to re- design production lines. The $25 billion is and the
Re- designed production lines are .

Accepted Answer

A)  net investment; gross investment 
B)  gross investment; physical capital 
C)  financial capital; physical capital 
D)  physical capital; financial capital 
A)  net investment; gross investment 
B)  gross investment; physical capital 
C)  financial capital; physical capital 
D)  physical capital; financial capital

Question 14

A government budget deficit the demand for loanable funds and investment.

Accepted Answer

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

Question 15

The Ricardo- Barro effect proposes that

Accepted Answer

A)  people expect lower disposable incomes in the future if the government runs a deficit. 
B)  tax payers do not have the ability to neutralize the effects of government deficits. 
C)  interest rates rise because of government deficits. 
D)  people expect government budget deficits to increase their incomes. 
A)  people expect lower disposable incomes in the future if the government runs a deficit. 
B)  tax payers do not have the ability to neutralize the effects of government deficits. 
C)  interest rates rise because of government deficits. 
D)  people expect government budget deficits to increase their incomes.

Question 16

If we import more than we export from the rest of the world we

Accepted Answer

A)  can lend an equal amount to the rest of the world. 
B)  are running a trade surplus. 
C)  must borrow an equal amount from the rest of the world. 
D)  are helping to finance investment in the rest of the world. 
A)  can lend an equal amount to the rest of the world. 
B)  are running a trade surplus. 
C)  must borrow an equal amount from the rest of the world. 
D)  are helping to finance investment in the rest of the world.

Question 17

-In the above figure, technological progress that increases the expected profit will

Accepted Answer

A)  have no effect on the demand for loanable funds curve. 
B)  shift the demand for loanable funds curve leftward. 
C)  shift the demand for loanable funds curve rightward. 
D)  make the demand for loanable funds curve become horizontal. 
A)  have no effect on the demand for loanable funds curve. 
B)  shift the demand for loanable funds curve leftward. 
C)  shift the demand for loanable funds curve rightward. 
D)  make the demand for loanable funds curve become horizontal.

Question 18

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in its firm. These owners of Grand Canyon Education the are entitled to a share of the firm's profits. This financing is an example of .

Accepted Answer

A)  issuing stock. 
B)  a bond 
C)  a mortgage 
D)  gross investment 
A)  issuing stock. 
B)  a bond 
C)  a mortgage 
D)  gross investment

Question 19

U.S. investment is financed from

Accepted Answer

A)  private saving and borrowing from the rest of the world only. 
B)  private saving, government budget surpluses, and borrowing from the rest of the world. 
C)  private borrowing, government budget deficits, and lending to the rest of the world. 
D)  private saving, government budget deficits, and borrowing from the rest of the world. 
A)  private saving and borrowing from the rest of the world only. 
B)  private saving, government budget surpluses, and borrowing from the rest of the world. 
C)  private borrowing, government budget deficits, and lending to the rest of the world. 
D)  private saving, government budget deficits, and borrowing from the rest of the world.

Question 20

A small country is a net foreign borrower if its real interest rate without foreign borrowing is
The world real interest rate.

Accepted Answer

A)  not comparable to 
B)  higher than 
C)  lower than 
D)  equal to 
A)  not comparable to 
B)  higher than 
C)  lower than 
D)  equal to

An increase in the real interest rate increases the quantity of saving because the higher real interest rate

If the real interest rate is 3 percent and the inflation rate is 2 percent, the nominal interest rate is approximately

The nominal interest rate approximately equals which of the following?

Approximately, the real interest rate the inflation rate _ the nominal interest rate.

Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is .

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

The crowding out effect refers to

-In the above figure, an increase in the expected profit will result in a movement from point E to

The table below shows data for the U.S. Between 2007 and 2008 the real interest rate _ and caused a the demand for loana funds curve.

A country's investment can be financed by _ .

Which of the following will shift the supply of loanable funds curve leftward?

In January 2008, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2008, Tim spent $200,000 on new machines. During 2008, Tim's net investment totalled

A government budget deficit the demand for loanable funds and investment.

The Ricardo- Barro effect proposes that

If we import more than we export from the rest of the world we

-In the above figure, technological progress that increases the expected profit will

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in its firm. These owners of Grand Canyon Education the are entitled to a share of the firm's profits. This financing is an example of .

U.S. investment is financed from

A small country is a net foreign borrower if its real interest rate without foreign borrowing is The world real interest rate.

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

An increase in the real interest rate increases the quantity of saving because the higher real interest rate

If the real interest rate is 3 percent and the inflation rate is 2 percent, the nominal interest rate is approximately

The nominal interest rate approximately equals which of the following?

Approximately, the real interest rate the inflation rate _ the nominal interest rate.

Suppose a firm has an investment project which will cost $200,000 and result in $30,000 profit. The firm will not undertake the project if the interest rate is .

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

The crowding out effect refers to

-In the above figure, an increase in the expected profit will result in a movement from point E to

The table below shows data for the U.S. Between 2007 and 2008 the real interest rate _ and caused a the demand for loana funds curve.

A country's investment can be financed by _ .

Which of the following will shift the supply of loanable funds curve leftward?

In January 2008, Tim's Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2008, Tim spent $200,000 on new machines. During 2008, Tim's net investment totalled

A government budget deficit the demand for loanable funds and investment.

The Ricardo- Barro effect proposes that

If we import more than we export from the rest of the world we

-In the above figure, technological progress that increases the expected profit will

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in its firm. These owners of Grand Canyon Education the are entitled to a share of the firm's profits. This financing is an example of .

U.S. investment is financed from

A small country is a net foreign borrower if its real interest rate without foreign borrowing is The world real interest rate.

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