Question 1

The Fisher effect states that the ​

Accepted Answer

A) nominal interest rate equals the expected inflation rate plus the real rate of interest. 
B) nominal interest rate equals the real rate of interest minus the expected inflation rate. 
C) real rate of interest equals the nominal interest rate plus the expected inflation rate. 
D) expected inflation rate equals the nominal interest rate plus the real rate of interest. 
A) nominal interest rate equals the expected inflation rate plus the real rate of interest. 
B) nominal interest rate equals the real rate of interest minus the expected inflation rate. 
C) real rate of interest equals the nominal interest rate plus the expected inflation rate. 
D) expected inflation rate equals the nominal interest rate plus the real rate of interest. A

Question 2

If a strong economy allows for a large ____ in households' income, the supply curve will shift ____.

Accepted Answer

A) decrease; outward 
B) increase; inward 
C) increase; outward 
D) None of these are correct. 
A) decrease; outward 
B) increase; inward 
C) increase; outward 
D) None of these are correct. C

Question 3

Other things being equal, foreign governments and corporations would demand ____ U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is ____ related to U.S. interest rates. ​

Accepted Answer

A) less; inversely 
B) more; positively 
C) less; positively 
D) more; inversely 
A) less; inversely 
B) more; positively 
C) less; positively 
D) more; inversely A

Question 4

A ____ federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an ____ shift in the demand schedule.

Accepted Answer

A) higher; inward 
B) higher; outward 
C) lower; outward 
D) None of these are correct. 
A) higher; inward 
B) higher; outward 
C) lower; outward 
D) None of these are correct.

Question 5

If the economy weakens, there is ____ pressure on interest rates. If the Federal Reserve increases the money supply there is ____ pressure on interest rates (assume that inflationary expectations are not affected). ​

Accepted Answer

A) upward; upward 
B) upward; downward 
C) downward; upward 
D) downward; downward 
A) upward; upward 
B) upward; downward 
C) downward; upward 
D) downward; downward

Question 6

The level of installment debt as a percentage of disposable income is generally ____ during recessionary periods. ​

Accepted Answer

A) higher 
B) lower 
C) zero 
D) negative 
A) higher 
B) lower 
C) zero 
D) negative

Question 7

The required rate of return to implement a proposed project will be ______ if interest rates are ________.

Accepted Answer

A) lower; higher 
B) lower; lower 
C) higher; lower 
D) higher; unchanged 
A) lower; higher 
B) lower; lower 
C) higher; lower 
D) higher; unchanged

Question 8

If the aggregate demand for loanable funds increases without a corresponding increase in aggregate supply, there will be a surplus of loanable funds.

Accepted Answer

A) True 
 B)False

Question 9

If investors shift funds from stocks into bank deposits, this ____ the supply of loanable funds and places ____ pressure on interest rates. ​

Accepted Answer

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

Question 10

According to the loanable funds theory, market interest rates are determined by the factors that control the supply of and demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 11

To forecast the real interest rate for an upcoming period using the Fisher effect, the expected inflation rate over that period is subtracted from the nominal interest rate quoted for that period.

Accepted Answer

A) True 
 B)False

Question 12

Forecasters should consider future plans for corporate expansion and the future state of the economy when forecasting business demand for loanable funds.

Accepted Answer

A) True 
 B)False

Question 13

If inflation turns out to be lower than expected ​

Accepted Answer

A) savers benefit. 
B) borrowers benefit while savers are not affected. 
C) savers and borrowers are equally affected. 
D) savers are adversely affected but borrowers benefit. 
A) savers benefit. 
B) borrowers benefit while savers are not affected. 
C) savers and borrowers are equally affected. 
D) savers are adversely affected but borrowers benefit.

Question 14

The ____ sector is the largest supplier of loanable funds.

Accepted Answer

A) household 
B) government 
C) business 
D) None of these are correct. 
A) household 
B) government 
C) business 
D) None of these are correct.

Question 15

The business demand for loanable funds is inversely related to the number of proposed projects implemented and inversely related to the interest rate.

Accepted Answer

A) True 
 B)False

Question 16

If inflation is expected to decrease, then ​

Accepted Answer

A) savers will provide less funds at the existing equilibrium interest rate. 
B) the equilibrium interest rate will increase. 
C) the equilibrium interest rate will decrease. 
D) borrowers will demand more funds at the existing equilibrium interest rate. 
A) savers will provide less funds at the existing equilibrium interest rate. 
B) the equilibrium interest rate will increase. 
C) the equilibrium interest rate will decrease. 
D) borrowers will demand more funds at the existing equilibrium interest rate.

Question 17

If economic expansion is expected to decrease, the demand for loanable funds should ____ and interest rates should ____. ​

Accepted Answer

A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase 
A) increase; increase 
B) increase; decrease 
C) decrease; decrease 
D) decrease; increase

Question 18

Businesses demand loanable funds to

Accepted Answer

A) finance installment debt. 
B) subsidize other companies. 
C) invest in long-term (fixed)assets. 
D) None of these are correct. 
A) finance installment debt. 
B) subsidize other companies. 
C) invest in long-term (fixed)assets. 
D) None of these are correct.

Question 19

Which of the following is least likely to affect household demand for loanable funds?

Accepted Answer

A) a decrease in tax rates 
B) an increase in interest rates 
C) a reduction in available projects with an expected high rate of return 
D) All of these are equally likely to affect household demand for loanable funds. 
A) a decrease in tax rates 
B) an increase in interest rates 
C) a reduction in available projects with an expected high rate of return 
D) All of these are equally likely to affect household demand for loanable funds.

Question 20

If the real interest rate is expected to become negative, then the purchasing power of savings would be ____, as the inflation rate is expected to be ____ the existing nominal interest rate. ​

Accepted Answer

A) decreasing; less than 
B) decreasing; greater than 
C) increasing; greater than 
D) increasing; less than 
A) decreasing; less than 
B) decreasing; greater than 
C) increasing; greater than 
D) increasing; less than

Exam 2: Determination of Interest Rates

The Fisher effect states that the ​

If a strong economy allows for a large ____ in households' income, the supply curve will shift ____.

Other things being equal, foreign governments and corporations would demand ____ U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is ____ related to U.S. interest rates. ​

A ____ federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an ____ shift in the demand schedule.

If the economy weakens, there is ____ pressure on interest rates. If the Federal Reserve increases the money supply there is ____ pressure on interest rates (assume that inflationary expectations are not affected). ​

The level of installment debt as a percentage of disposable income is generally ____ during recessionary periods. ​

The required rate of return to implement a proposed project will be ______ if interest rates are ________.

If the aggregate demand for loanable funds increases without a corresponding increase in aggregate supply, there will be a surplus of loanable funds.

If investors shift funds from stocks into bank deposits, this ____ the supply of loanable funds and places ____ pressure on interest rates. ​

According to the loanable funds theory, market interest rates are determined by the factors that control the supply of and demand for loanable funds.

To forecast the real interest rate for an upcoming period using the Fisher effect, the expected inflation rate over that period is subtracted from the nominal interest rate quoted for that period.

Forecasters should consider future plans for corporate expansion and the future state of the economy when forecasting business demand for loanable funds.

If inflation turns out to be lower than expected ​

The ____ sector is the largest supplier of loanable funds.

The business demand for loanable funds is inversely related to the number of proposed projects implemented and inversely related to the interest rate.

If inflation is expected to decrease, then ​

If economic expansion is expected to decrease, the demand for loanable funds should ____ and interest rates should ____. ​

Businesses demand loanable funds to

Which of the following is least likely to affect household demand for loanable funds?

If the real interest rate is expected to become negative, then the purchasing power of savings would be ____, as the inflation rate is expected to be ____ the existing nominal interest rate. ​

Role of Financial Markets and Institutions

Structure of Interest Rates

Functions of the Fed

Monetary Policy

Money Markets

Bond Markets

Bond Valuation and Risk

Mortgage Markets

Stock Offerings and Investor Monitoring

Stock Valuation and Risk

Market Microstructure and Strategies

Financial Futures Markets

Options Markets

Swap Markets

Foreign Exchange Derivative Markets

Commercial Bank Operations

Bank Regulation

Bank Management

Bank Performance

Thrift Operations

Finance Company Operations

Mutual Fund Operations

Securities Operations

Insurance and Pension Fund Operations

Pension Fund Operations

Filters

The Fisher effect states that the

If a strong economy allows for a large in households' income, the supply curve will shift .

Other things being equal, foreign governments and corporations would demand U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is related to U.S. interest rates.

A federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an shift in the demand schedule.

If the economy weakens, there is pressure on interest rates. If the Federal Reserve increases the money supply there is pressure on interest rates (assume that inflationary expectations are not affected).

The level of installment debt as a percentage of disposable income is generally ____ during recessionary periods.

The required rate of return to implement a proposed project will be if interest rates are __.

If investors shift funds from stocks into bank deposits, this the supply of loanable funds and places pressure on interest rates.

If inflation turns out to be lower than expected

If inflation is expected to decrease, then

If economic expansion is expected to decrease, the demand for loanable funds should and interest rates should .

If the real interest rate is expected to become negative, then the purchasing power of savings would be , as the inflation rate is expected to be the existing nominal interest rate.