Question 1

A rise in the real interest rate

Accepted Answer

A)  shifts the demand for loanable funds curve rightward. 
B)  creates a movement downward along the demand for loanable funds curve. 
C)  creates a movement upward along the demand for loanable funds curve. 
D)  shifts the demand for loanable funds curve leftward. 
A)  shifts the demand for loanable funds curve rightward. 
B)  creates a movement downward along the demand for loanable funds curve. 
C)  creates a movement upward along the demand for loanable funds curve. 
D)  shifts the demand for loanable funds curve leftward.

Question 2

If the economyʹs capital stock increases over time,

Accepted Answer

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

Question 3

When the inflation rate is positive, the

Accepted Answer

A)  real interest rate equals the nominal interest rate. 
B)  real interest rate is less than the nominal interest rate. 
C)  nominal interest rate is zero. 
D)  real interest rate is greater than the nominal interest rate. 
A)  real interest rate equals the nominal interest rate. 
B)  real interest rate is less than the nominal interest rate. 
C)  nominal interest rate is zero. 
D)  real interest rate is greater than the nominal interest rate.

Question 4

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

Accepted Answer

A)  0.25 percent. 
B)  6 percent. 
C)  4 percent. 
D)  10 percent. 
A)  0.25 percent. 
B)  6 percent. 
C)  4 percent. 
D)  10 percent.

Question 5

-In the above figure, if the real interest rate is 8 percent, then there is

Accepted Answer

A)  a leftward shift in the SLF curve. 
B)  an increase in the equilibrium interest rate. 
C)  a rightward shift in the DLF curve. 
D)  a surplus of loanable funds. 
A)  a leftward shift in the SLF curve. 
B)  an increase in the equilibrium interest rate. 
C)  a rightward shift in the DLF curve. 
D)  a surplus of loanable funds.

Question 6

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a in the for loanable funds curve.

Accepted Answer

A)  movement downward along; supply. 
B)  movement upward along; demand. 
C)  leftward shift; demand. 
D)  leftward shift; supply. 
A)  movement downward along; supply. 
B)  movement upward along; demand. 
C)  leftward shift; demand. 
D)  leftward shift; supply.

Question 7

$\begin{array}{|l|l|l|}
\hline \text { Real } & \text { Loanable } & \text { Loanable } \
\text { interest } & \text { funds } & \text { funds } \
\text { rate } & \text { demanded } & \text { supplied } \
\text { (percent per } & \text { (trillions of } & \text { (trillions of } \
\text { year) } & 2005 & 2005 \
& \text { dollars) } & \text { dollars) } \\hline 10 & 0.7 & 1.5 \
\hline 8 & 0.9 & 1.3 \
\hline 6 & 1.1 & 1.1 \
\hline 4 & 1.4 & 0.9 \
\hline 2 & 1.7 & 0.7 \
\hline
\end{array}$
-The table above shows the loanable funds supply and demand schedules.
a) What is the equilibrium real interest rate and the equilibrium quantity of loanable funds?
b) If the real interest rate is 4 percent, is there a shortage or surplus? What will happen in the market?

Accepted Answer

a) The equilibrium real interest rate is

Question 8

If our exports are $2.2 billion and our imports are $2.7 billion,

Accepted Answer

A)  U.S. national saving is too high. 
B)  the United States is borrowing from the rest of the world. 
C)  the United States is lending to the rest of the world. 
D)  U.S. investment must decrease. 
A)  U.S. national saving is too high. 
B)  the United States is borrowing from the rest of the world. 
C)  the United States is lending to the rest of the world. 
D)  U.S. investment must decrease.

Question 9

-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and and the expected profit rises, the amount of loanable funds demanded will be

Accepted Answer

A)  greater than $450 billion. 
B)  $450 billion. 
C)  less than $450 billion. 
D)  between $300 billion and $450 billion. 
A)  greater than $450 billion. 
B)  $450 billion. 
C)  less than $450 billion. 
D)  between $300 billion and $450 billion.

Question 10

Franceʹs government is running a budget deficit. With no Ricardo-Barro effect, which of the following events will occur?
i. The supply curve of loanable funds will shift leftward.
ii. A higher real interest rate crowds out investment.
iii. Saving increases.

Accepted Answer

A)  i only. 
B)  ii and iii. 
C)  iii only. 
D)  i and ii. 
A)  i only. 
B)  ii and iii. 
C)  iii only. 
D)  i and ii.

Question 11

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

Accepted Answer

A)  lenders will be unable to find borrowers willing to borrow all of the available funds and the supply of loanable funds curve will shift leftward. 
B)  borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve will shift leftward. 
C)  borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve will shift rightward. 
D)  a shortage of of loanable funds will cause the real interest rate to rise. 
A)  lenders will be unable to find borrowers willing to borrow all of the available funds and the supply of loanable funds curve will shift leftward. 
B)  borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve will shift leftward. 
C)  borrowers will be unable to borrow all of the funds they want to borrow and the demand for loanable funds curve will shift rightward. 
D)  a shortage of of loanable funds will cause the real interest rate to rise.

Question 12

The demand for loanable funds curve shows that as the interest rate increases, there will be a curve.

Accepted Answer

A)  nominal; movement down along 
B)  real; movement up along. 
C)  nominal; rightward shift in 
D)  real; rightward shift in 
A)  nominal; movement down along 
B)  real; movement up along. 
C)  nominal; rightward shift in 
D)  real; rightward shift in

Question 13

In 2010, the United States and foreign economies start to recover from the recession. U.S. firms increase their profit expectations. As a result, the demand for loanable funds curve shifts and the real interest rate .

Accepted Answer

A)  leftward; decreases. 
B)  rightward; increases. 
C)  rightward; decreases. 
D)  leftward; increases. 
A)  leftward; decreases. 
B)  rightward; increases. 
C)  rightward; decreases. 
D)  leftward; increases.

Question 14

In 2007, Franceʹs exports totaled $490 billion and its imports totaled $529 billion.As a result ,the
i. rest of the world supplies funds to France.
ii. quantity of loanable funds in France is less than the supply.
iii. Ricardo-Barro effect occurs in France.

Accepted Answer

A)  i only. 
B)  i, ii and iii. 
C)  ii and iii only. 
D)  i and ii. 
A)  i only. 
B)  i, ii and iii. 
C)  ii and iii only. 
D)  i and ii.

Question 15

U.S. investment is financed from

Accepted Answer

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

Question 16

Suppose that, initially, the nominal interest rate is 6 percent and the inflation rate is 3 percent. If the inflation rate increases to 6 percent, what will be the new nominal interest rate?

Accepted Answer

A)  6 percent 
B)  11 percent 
C)  1 percent 
D)  9 percent 
A)  6 percent 
B)  11 percent 
C)  1 percent 
D)  9 percent

Question 17

If national saving S) is $100,000, net taxes T) equal $100,000 and government expenditure G. is $25,000, how much are households and businesses saving?

Accepted Answer

A)  $25,000. 
B)  -$25,000. 
C)  $225,000. 
D)  none of the above 
A)  $25,000. 
B)  -$25,000. 
C)  $225,000. 
D)  none of the above

Question 18

In 2007, the interest rate banks in France charge each other for loans was 4.86 percent. The inflation rate in France in 2007 was 2.8 percent. The real interest rate in France is

Accepted Answer

A)  13.6 percent. 
B)  2.06 percent. 
C)  0.58 percent. 
D)  7.62 percent 
A)  13.6 percent. 
B)  2.06 percent. 
C)  0.58 percent. 
D)  7.62 percent

Question 19

Sarah and Diane are both billing clerks for the local trucking company earning $17,000 per year. Sarah is attending college, plans to graduate in one year and earn $55,000 as an economist. Diane is not in college or undergoing any specialized training and will have the same job next year. According to economic theory, which of the two individuals would tend to have a higher current savings rate?

Accepted Answer

A)  Economic theory sheds no light on this question 
B)  Both will have the same saving rate 
C)  Diane 
D)  Sarah 
A)  Economic theory sheds no light on this question 
B)  Both will have the same saving rate 
C)  Diane 
D)  Sarah

Question 20

The Ricardo-Barro effect holds that

Accepted Answer

A)  a government budget deficit induces a decrease in saving that magnifies the crowding out effect. 
B)  government budget deficits have no effect on the real interest rate. 
C)  equal increases in taxes and government expenditures have no effect on equilibrium real GDP. 
D)  a government budget deficit crowds out private investment. 
A)  a government budget deficit induces a decrease in saving that magnifies the crowding out effect. 
B)  government budget deficits have no effect on the real interest rate. 
C)  equal increases in taxes and government expenditures have no effect on equilibrium real GDP. 
D)  a government budget deficit crowds out private investment.

A rise in the real interest rate

If the economyʹs capital stock increases over time,

When the inflation rate is positive, the

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

-In the above figure, if the real interest rate is 8 percent, then there is

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a in the for loanable funds curve.

If our exports are $2.2 billion and our imports are $2.7 billion,

-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and and the expected profit rises, the amount of loanable funds demanded will be

Franceʹs government is running a budget deficit. With no Ricardo-Barro effect, which of the following events will occur? i. The supply curve of loanable funds will shift leftward. ii. A higher real interest rate crowds out investment. iii. Saving increases.

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

The demand for loanable funds curve shows that as the interest rate increases, there will be a curve.

In 2010, the United States and foreign economies start to recover from the recession. U.S. firms increase their profit expectations. As a result, the demand for loanable funds curve shifts and the real interest rate .

In 2007, Franceʹs exports totaled $490 billion and its imports totaled $529 billion.As a result ,the i. rest of the world supplies funds to France. ii. quantity of loanable funds in France is less than the supply. iii. Ricardo-Barro effect occurs in France.

U.S. investment is financed from

Suppose that, initially, the nominal interest rate is 6 percent and the inflation rate is 3 percent. If the inflation rate increases to 6 percent, what will be the new nominal interest rate?

If national saving S) is $100,000, net taxes T) equal $100,000 and government expenditure G. is $25,000, how much are households and businesses saving?

In 2007, the interest rate banks in France charge each other for loans was 4.86 percent. The inflation rate in France in 2007 was 2.8 percent. The real interest rate in France is

The Ricardo-Barro effect holds that

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: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters

Exam 7: Finance, Saving, and Investment

A rise in the real interest rate

If the economyʹs capital stock increases over time,

When the inflation rate is positive, the

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

-In the above figure, if the real interest rate is 8 percent, then there is

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a in the for loanable funds curve.

If our exports are $2.2 billion and our imports are $2.7 billion,

-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 percent and and the expected profit rises, the amount of loanable funds demanded will be

Franceʹs government is running a budget deficit. With no Ricardo-Barro effect, which of the following events will occur? i. The supply curve of loanable funds will shift leftward. ii. A higher real interest rate crowds out investment. iii. Saving increases.

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

The demand for loanable funds curve shows that as the interest rate increases, there will be a curve.

In 2010, the United States and foreign economies start to recover from the recession. U.S. firms increase their profit expectations. As a result, the demand for loanable funds curve shifts and the real interest rate .

In 2007, Franceʹs exports totaled $490 billion and its imports totaled $529 billion.As a result ,the i. rest of the world supplies funds to France. ii. quantity of loanable funds in France is less than the supply. iii. Ricardo-Barro effect occurs in France.

U.S. investment is financed from

Suppose that, initially, the nominal interest rate is 6 percent and the inflation rate is 3 percent. If the inflation rate increases to 6 percent, what will be the new nominal interest rate?

If national saving S) is $100,000, net taxes T) equal $100,000 and government expenditure G. is $25,000, how much are households and businesses saving?

In 2007, the interest rate banks in France charge each other for loans was 4.86 percent. The inflation rate in France in 2007 was 2.8 percent. The real interest rate in France is

The Ricardo-Barro effect holds that

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: the Keynesian Model

U.S Inflation, Unemployment, and Business Cycle

Fiscal Policy

Monetary Policy

International Trade Policy

Review

Filters