Question 1

A decrease in disposable income .

Accepted Answer

A)  has no effect on the supply of loanable funds curve 
B)  results in movement up the supply of loanable funds curve 
C)  shifts the supply of loanable funds curve leftward 
D)  shifts the supply of loanable funds curve rightward 
A)  has no effect on the supply of loanable funds curve 
B)  results in movement up the supply of loanable funds curve 
C)  shifts the supply of loanable funds curve leftward 
D)  shifts the supply of loanable funds curve rightward

Question 2

All of the following are sources of loanable funds except

Accepted Answer

A)  business investment. 
B)  government budget surplus. 
C)  international borrowing. 
D)  private saving. 
A)  business investment. 
B)  government budget surplus. 
C)  international borrowing. 
D)  private saving.

Question 3

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?

Accepted Answer

A)  8 percent 
B)  3 percent 
C)  11 percent 
D)  5 percent 
A)  8 percent 
B)  3 percent 
C)  11 percent 
D)  5 percent

Question 4

The crowding out effect refers to

Accepted Answer

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

Question 5

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

Question 6

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

Question 7

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

Accepted Answer

A)  rest of the world may or may not finance the U.S. trade deficit. 
B)  United States must borrow an amount equal to consumption expenditure plus investment. 
C)  United States must borrow an amount equal to imports minus exports. 
D)  United States must borrow an amount equal to national saving. 
A)  rest of the world may or may not finance the U.S. trade deficit. 
B)  United States must borrow an amount equal to consumption expenditure plus investment. 
C)  United States must borrow an amount equal to imports minus exports. 
D)  United States must borrow an amount equal to national saving.

Question 8

As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?

Accepted Answer

A)  There was a leftward shift in the supply of loanable funds curve. 
B)  There was a movement down along the demand for loanable funds curve. 
C)  There was a rightward shift in the supply of loanable funds curve. 
D)  There was a movement up along the supply of loanable funds curve. 
A)  There was a leftward shift in the supply of loanable funds curve. 
B)  There was a movement down along the demand for loanable funds curve. 
C)  There was a rightward shift in the supply of loanable funds curve. 
D)  There was a movement up along the supply of loanable funds curve.

Question 9

The quantity of by households will be less .

Accepted Answer

A)  consumption; the lower is the inflation rate 
B)  saving; the lower is the real interest rate 
C)  consumption; the higher is disposable income 
D)  saving; the higher is disposable income 
A)  consumption; the lower is the inflation rate 
B)  saving; the lower is the real interest rate 
C)  consumption; the higher is disposable income 
D)  saving; the higher is disposable income

Question 10

Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a
Shift in the loanable funds curve.

Accepted Answer

A)  rightward; demand for 
B)  leftward; demand for 
C)  rightward; supply of 
D)  rightward, supply of 
A)  rightward; demand for 
B)  leftward; demand for 
C)  rightward; supply of 
D)  rightward, supply of

Question 11

Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent. At the end of the year you have earned

Accepted Answer

A)  a real return of $80. 
B)  a nominal return of $50. 
C)  a real return of $50. 
D)  a negative real return. 
A)  a real return of $80. 
B)  a nominal return of $50. 
C)  a real return of $50. 
D)  a negative real return.

Question 12

-In the above figure, if the real interest rate is 4 percent, then there

Accepted Answer

A)  the real interest rate will rise. 
B)  the demand curve for loanable funds will shift rightward. 
C)  there is a surplus of loanable funds. 
D)  is equilibrium in the loanable funds market. 
A)  the real interest rate will rise. 
B)  the demand curve for loanable funds will shift rightward. 
C)  there is a surplus of loanable funds. 
D)  is equilibrium in the loanable funds market.

Question 13

If the government runs a budget deficit, then

Accepted Answer

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

Question 14

The table below shows data for the United States.
$$\begin{array} { | l | l | l | } 
\hline & \begin{array} { l } 
\text { Nominal } \
\text { Interest } \
\text { Rate }
\end{array} & \begin{array} { l } 
\text { Inflation } \
\text { Rate }
\end{array} \
\hline 2006 & 5.25 & 4 \
\hline 2007 & 5 & 2 \
\hline 2008 & 4.5 & 4.3 \
\hline
\end{array}$$
Between 2006 and 2007, the real interest rate and caused a the demand for loanable funds curve.

Accepted Answer

A)  decreased; downward along 
B)  decreased; leftward. 
C)  increased; movement upward along 
D)  increased; rightward shift. 
A)  decreased; downward along 
B)  decreased; leftward. 
C)  increased; movement upward along 
D)  increased; rightward shift.

Question 15

Greater optimism about the expected profits from investment projects

Accepted Answer

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

Question 16

Which of the following is TRUE regarding the real interest rate?
I. The real interest rate is the opportunity cost of borrowed funds.
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

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 18

The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

Accepted Answer

A) True 
 B)False

Question 19

-In the above figure, the initial supply of loanable funds curve is SLF0 and the demand for loanable funds investment curve is DLF0. An increase in the real interest rate to 7 percent could be caused by

Accepted Answer

A)  an increase in investment demand. 
B)  an expansion that increased both saving and investment by the same amount. 
C)  a decrease in the expected profit. 
D)  an increase in peopleʹs disposable incomes. 
A)  an increase in investment demand. 
B)  an expansion that increased both saving and investment by the same amount. 
C)  a decrease in the expected profit. 
D)  an increase in peopleʹs disposable incomes.

Question 20

In the global loanable funds market,

Accepted Answer

A)  funds flow into countries with the highest risk-adjusted interest rates and out of countries with the lowest risk-adjusted interest rates. 
B)  when funds enter a country, a surplus of funds raises the real interest rate. 
C)  when funds leave a country, a shortage of funds lowers the real interest rate. 
D)  funds flow into countries with the lowest risk-adjusted interest rates and out of countries with the highest risk-adjusted interest rates. 
A)  funds flow into countries with the highest risk-adjusted interest rates and out of countries with the lowest risk-adjusted interest rates. 
B)  when funds enter a country, a surplus of funds raises the real interest rate. 
C)  when funds leave a country, a shortage of funds lowers the real interest rate. 
D)  funds flow into countries with the lowest risk-adjusted interest rates and out of countries with the highest risk-adjusted interest rates.

A decrease in disposable income .

All of the following are sources of loanable funds except

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?

The crowding out effect refers to

-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?

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

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?

The quantity of by households will be less .

Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a Shift in the loanable funds curve.

Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent. At the end of the year you have earned

-In the above figure, if the real interest rate is 4 percent, then there

If the government runs a budget deficit, then

The table below shows data for the United States. Nominal Interest Rate Inflation Rate 2006 5.25 4 2007 5 2 2008 4.5 4.3 Between 2006 and 2007, the real interest rate and caused a the demand for loanable funds curve.

Greater optimism about the expected profits from investment projects

Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the opportunity cost of borrowed funds. II. The real interest rate equals the nominal interest rate adjusted for inflation.

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

The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

-In the above figure, the initial supply of loanable funds curve is SLF₀and the demand for loanable funds investment curve is DLF₀. An increase in the real interest rate to 7 percent could be caused by

In the global loanable funds market,

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 decrease in disposable income .

All of the following are sources of loanable funds except

If the nominal interest rate is 8 percent and the current inflation rate is 3 percent, approximately what is the real interest rate?

The crowding out effect refers to

-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?

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

Suppose the United States spends more on foreign goods and services than foreigners spend on our goods and services and the United States sells no foreign assets. Then the

As a result of the recession in 2008, the default risk increased. How did this change affect the loanable funds market?

The quantity of by households will be less .

Due to the recession in 2008, firms decreased their profit expectations. As a result, there was a Shift in the loanable funds curve.

Assume you save $1,000 in a bank account that pays 8 percent interest per year and the inflation rate is 3 percent. At the end of the year you have earned

-In the above figure, if the real interest rate is 4 percent, then there

If the government runs a budget deficit, then

The table below shows data for the United States. Nominal Interest Rate Inflation Rate 2006 5.25 4 2007 5 2 2008 4.5 4.3 Between 2006 and 2007, the real interest rate and caused a the demand for loanable funds curve.

Greater optimism about the expected profits from investment projects

Which of the following is TRUE regarding the real interest rate? I. The real interest rate is the opportunity cost of borrowed funds. II. The real interest rate equals the nominal interest rate adjusted for inflation.

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

The nominal interest rate is approximately equal to the real interest rate minus the inflation rate.

-In the above figure, the initial supply of loanable funds curve is SLF0 and the demand for loanable funds investment curve is DLF0. An increase in the real interest rate to 7 percent could be caused by

In the global loanable funds market,

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

-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 initial supply of loanable funds curve is SLF₀and the demand for loanable funds investment curve is DLF₀. An increase in the real interest rate to 7 percent could be caused by