Question 1

If a firm wants to buy a piece of capital equipment, is this firm a demander or supplier in the financial market?

Accepted Answer

A financial market is where firms get th

Question 2

The demand for loanable funds

Accepted Answer

A)  increases in a recession. 
B)  decreases in an expansion. 
C)  increases when firms are optimistic about the profit from investing in capital. 
D)  increases when wealth increases. 
E)  decreases when wealth increases. 
A)  increases in a recession. 
B)  decreases in an expansion. 
C)  increases when firms are optimistic about the profit from investing in capital. 
D)  increases when wealth increases. 
E)  decreases when wealth increases.

Question 3

The demand for loanable funds

Accepted Answer

A)  increases in an expansion and decreases in a recession. 
B)  decreases in an expansion and increases in a recession. 
C)  increases if population growth declines. 
D)  increases if the expected rate of profit decreases. 
E)  increases if wealth increases. 
A)  increases in an expansion and decreases in a recession. 
B)  decreases in an expansion and increases in a recession. 
C)  increases if population growth declines. 
D)  increases if the expected rate of profit decreases. 
E)  increases if wealth increases.

Question 4

During 2009, a country's total purchases of newly produced capital goods are $1,000 billion, the country issues $750 billion of stock certificates, and there is $200 billion of depreciation.Net investment in this country equals

Accepted Answer

A)  $800 billion. 
B)  $1,550 billion. 
C)  $1,000 billion. 
D)  $1,750 billion. 
E)  $550 billion. 
A)  $800 billion. 
B)  $1,550 billion. 
C)  $1,000 billion. 
D)  $1,750 billion. 
E)  $550 billion.

Question 5

As a result of the government's rescue of financial firms and the auto industry in 2008, which of the following occurred?
i. The government's demand for loanable funds increased the real interest rate.
ii. Investment expenditures were crowded out.
iii. The supply of loanable funds curve shifted leftward.

Accepted Answer

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

Question 6

"The crowding-out effect occurs when a government budget surplus reduces private savings." Is the previous statement true or false?
 Explain your answer.

Accepted Answer

The statement is false.The crowding-out

Question 7

During a recession, firms' expected profit from investment ________ so the demand for loanable funds curve ________.

Accepted Answer

A)  falls; shifts rightward 
B)  falls; shifts leftward 
C)  rises; shifts rightward 
D)  rises; shifts leftward 
E)  falls; does not shift 
A)  falls; shifts rightward 
B)  falls; shifts leftward 
C)  rises; shifts rightward 
D)  rises; shifts leftward 
E)  falls; does not shift

Question 8

In the loanable funds market, which of the following is an example of investment demand?

Accepted Answer

A)  Mary buying stocks for her retirement portfolio 
B)  George purchasing United States savings bonds for his son's college fund 
C)  Scott purchasing a rookie-year baseball card for last year's World Series MVP 
D)  Brian, owner of Bryan Games, purchasing computers to enhance the production of games 
E)  Mark buying rare gold coins 
A)  Mary buying stocks for her retirement portfolio 
B)  George purchasing United States savings bonds for his son's college fund 
C)  Scott purchasing a rookie-year baseball card for last year's World Series MVP 
D)  Brian, owner of Bryan Games, purchasing computers to enhance the production of games 
E)  Mark buying rare gold coins

Question 9

According to the Ricardo-Barro effect, a government budget

Accepted Answer

A)  surplus increases private saving supply. 
B)  deficit increases private saving supply. 
C)  deficit decreases private saving supply. 
D)  surplus decreases private investment demand. 
E)  deficit decreases private investment demand. 
A)  surplus increases private saving supply. 
B)  deficit increases private saving supply. 
C)  deficit decreases private saving supply. 
D)  surplus decreases private investment demand. 
E)  deficit decreases private investment demand.

Question 10

On January 1, Rick's Photo owned $50,000 of equipment.During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced

Accepted Answer

A)  net investment of $10,000. 
B)  an increase in financial capital of $65,000. 
C)  a decrease in financial capital of $15,000. 
D)  depreciation of $15,000. 
E)  gross investment of $50,000. 
A)  net investment of $10,000. 
B)  an increase in financial capital of $65,000. 
C)  a decrease in financial capital of $15,000. 
D)  depreciation of $15,000. 
E)  gross investment of $50,000.

Question 11

In which of the following cases would the supply of loanable funds curve shift rightward?

Accepted Answer

A)  Joe is worried about cutbacks at his firm so his expected future income falls. 
B)  In June, Sally learns that at year's end she will receive a bonus that will double her current salary. 
C)  The stock market booms so people's wealth increases. 
D)  The economy moves into a recession. 
E)  Investment demand increases. 
A)  Joe is worried about cutbacks at his firm so his expected future income falls. 
B)  In June, Sally learns that at year's end she will receive a bonus that will double her current salary. 
C)  The stock market booms so people's wealth increases. 
D)  The economy moves into a recession. 
E)  Investment demand increases.

Question 12

$$\begin{array} { c c c c c } 
\begin{array} { l } 
\text { Real interest rate } \
\text { (percent per year) }
\end{array} & \begin{array} { c } 
\text { Investment } \
\text { (billions of }
\end{array} & \begin{array} { c } 
\text { Private saving } \
\text { (billions of }
\end{array} & \begin{array} { c } 
\text { Net taxes } \
\text { (billions of }
\end{array} & \begin{array} { c } 
\text { Government expenditures } \
\text { (billions of }
\end{array} \
\text { 2005 dollars) } & \text { 2005 dollars) } & \text { 2005 dollars) } \
\hline 3 & 60 & 20 & 40 & 20 \
4 & 50 & 30 & 40 & 20 \
5 & 40 & 40 & 40 & 20 \
6 & 30 & 50 & 40 & 20 \
7 & 20 & 60 & 40 & 20
\end{array}$$
-The table above gives a nation's investment demand and saving supply schedules.It also has the government's net taxes and expenditures.The government has a budget

Accepted Answer

A)  surplus of $60 billion. 
B)  surplus of $20 billion. 
C)  deficit of $20 billion. 
D)  deficit of $60 billion. 
E)  surplus of $40 billion. 
A)  surplus of $60 billion. 
B)  surplus of $20 billion. 
C)  deficit of $20 billion. 
D)  deficit of $60 billion. 
E)  surplus of $40 billion.

Question 13

The figure above shows the supply of loanable funds curve.
-If investment demand increases, the equilibrium real interest rate ________ and the equilibrium quantity of investment ________.

Accepted Answer

A)  rises; increases 
B)  rises; decreases 
C)  falls; increases 
D)  falls; decreases 
E)  does not change; does not change 
A)  rises; increases 
B)  rises; decreases 
C)  falls; increases 
D)  falls; decreases 
E)  does not change; does not change

Question 14

Explain how a government budget deficit might crowd out private investment.

Accepted Answer

If there is no Ricardo-Barro effect, a g

Question 15

The supply of loanable funds curve has a positive slope because the

Accepted Answer

A)  higher the real interest rate, the lower the return to saving. 
B)  average return in the stock market is directly related to the real interest rate. 
C)  lower the real interest rate, the higher the return to saving. 
D)  lower the real interest rate, the lower the return to saving. 
E)  quantity of investment increases when the real interest rate increases. 
A)  higher the real interest rate, the lower the return to saving. 
B)  average return in the stock market is directly related to the real interest rate. 
C)  lower the real interest rate, the higher the return to saving. 
D)  lower the real interest rate, the lower the return to saving. 
E)  quantity of investment increases when the real interest rate increases.

Question 16

A prediction of the Ricardo-Barro effect is

Accepted Answer

A)  a larger increase in the real interest rate when the government runs a budget deficit. 
B)  a larger decrease in the real interest rate when the government runs a budget surplus. 
C)  no effect on the real interest rate when the government runs a budget deficit. 
D)  a larger decrease in investment when the government runs a budget deficit. 
E)  a larger decrease in investment when the government runs a budget surplus. 
A)  a larger increase in the real interest rate when the government runs a budget deficit. 
B)  a larger decrease in the real interest rate when the government runs a budget surplus. 
C)  no effect on the real interest rate when the government runs a budget deficit. 
D)  a larger decrease in investment when the government runs a budget deficit. 
E)  a larger decrease in investment when the government runs a budget surplus.

Question 17

Suppose the government has a budget deficit of $2 billion.If there is no Ricardo-Barro effect, how much crowding out of investment occurs?

Accepted Answer

A)  more than $2 billion 
B)  some crowding out occurs, but less than $2 billion 
C)  exactly equal to $2 billion dollars 
D)  no crowding out occurs and investment does not change 
E)  no crowding out occurs because investment increases 
A)  more than $2 billion 
B)  some crowding out occurs, but less than $2 billion 
C)  exactly equal to $2 billion dollars 
D)  no crowding out occurs and investment does not change 
E)  no crowding out occurs because investment increases

Question 18

When the real interest rate ________ the equilibrium real interest rate, there is a ________ of loanable funds and the real interest rate ________.

Accepted Answer

A)  exceeds; surplus; rises 
B)  is less than; surplus; rises 
C)  exceeds; shortage; rises 
D)  is less than; shortage; rises 
E)  is less than; shortage; falls 
A)  exceeds; surplus; rises 
B)  is less than; surplus; rises 
C)  exceeds; shortage; rises 
D)  is less than; shortage; rises 
E)  is less than; shortage; falls

Question 19

If a government has a budget deficit, it must

Accepted Answer

A)  borrow in the loanable funds market. 
B)  increase taxes. 
C)  lower the real interest rate. 
D)  decrease its expenditures. 
E)  decrease taxes. 
A)  borrow in the loanable funds market. 
B)  increase taxes. 
C)  lower the real interest rate. 
D)  decrease its expenditures. 
E)  decrease taxes.

Question 20

Economists use the word "capital" to mean

Accepted Answer

A)  the tools, instruments, and other produced goods used to produce goods and services. 
B)  the funds that firms use to buy and operate their businesses. 
C)  purchases in the market for stocks and bonds. 
D)  the workers that firms employ to produce goods and services. 
E)  people's skills and talents. 
A)  the tools, instruments, and other produced goods used to produce goods and services. 
B)  the funds that firms use to buy and operate their businesses. 
C)  purchases in the market for stocks and bonds. 
D)  the workers that firms employ to produce goods and services. 
E)  people's skills and talents.

If a firm wants to buy a piece of capital equipment, is this firm a demander or supplier in the financial market?

The demand for loanable funds

The demand for loanable funds

During 2009, a country's total purchases of newly produced capital goods are $1,000 billion, the country issues $750 billion of stock certificates, and there is $200 billion of depreciation.Net investment in this country equals

"The crowding-out effect occurs when a government budget surplus reduces private savings." Is the previous statement true or false? Explain your answer.

During a recession, firms' expected profit from investment so the demand for loanable funds curve .

In the loanable funds market, which of the following is an example of investment demand?

According to the Ricardo-Barro effect, a government budget

On January 1, Rick's Photo owned $50,000 of equipment.During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced

In which of the following cases would the supply of loanable funds curve shift rightward?

The figure above shows the supply of loanable funds curve. -If investment demand increases, the equilibrium real interest rate and the equilibrium quantity of investment .

Explain how a government budget deficit might crowd out private investment.

The supply of loanable funds curve has a positive slope because the

A prediction of the Ricardo-Barro effect is

Suppose the government has a budget deficit of $2 billion.If there is no Ricardo-Barro effect, how much crowding out of investment occurs?

When the real interest rate the equilibrium real interest rate, there is a of loanable funds and the real interest rate .

If a government has a budget deficit, it must

Economists use the word "capital" to mean

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

Exam 10: Finance, Saving, and Investment

If a firm wants to buy a piece of capital equipment, is this firm a demander or supplier in the financial market?

The demand for loanable funds

The demand for loanable funds

During 2009, a country's total purchases of newly produced capital goods are $1,000 billion, the country issues $750 billion of stock certificates, and there is $200 billion of depreciation.Net investment in this country equals

"The crowding-out effect occurs when a government budget surplus reduces private savings." Is the previous statement true or false? Explain your answer.

During a recession, firms' expected profit from investment ________ so the demand for loanable funds curve ________.

In the loanable funds market, which of the following is an example of investment demand?

According to the Ricardo-Barro effect, a government budget

On January 1, Rick's Photo owned $50,000 of equipment.During the year, the value of the equipment fell by $10,000, plus Rick bought $25,000 in new equipment. Rick's company experienced

In which of the following cases would the supply of loanable funds curve shift rightward?

The figure above shows the supply of loanable funds curve. -If investment demand increases, the equilibrium real interest rate ________ and the equilibrium quantity of investment ________.

Explain how a government budget deficit might crowd out private investment.

The supply of loanable funds curve has a positive slope because the

A prediction of the Ricardo-Barro effect is

Suppose the government has a budget deficit of $2 billion.If there is no Ricardo-Barro effect, how much crowding out of investment occurs?

When the real interest rate ________ the equilibrium real interest rate, there is a ________ of loanable funds and the real interest rate ________.

If a government has a budget deficit, it must

Economists use the word "capital" to mean

Getting Started

The Usand Global Economies

The Economic Problem

Demand and Supply

Gdp: a Measure of Total Production and Income

Jobs and Unemployment

The Cpi and the Cost of Living

Potential Gdp and the Natural Unemployment Rate

Economic Growth

The Monetary System

Money, Interest, and Inflation

Aggregate Supply and Aggregate Demand

Aggregate Expenditure Multiplier

The Short-Run Policy Tradeoff

Fiscal Policy

Monetary Policy

International Trade Policy

International Finance

Filters

During a recession, firms' expected profit from investment so the demand for loanable funds curve .

The figure above shows the supply of loanable funds curve. -If investment demand increases, the equilibrium real interest rate and the equilibrium quantity of investment .

When the real interest rate the equilibrium real interest rate, there is a of loanable funds and the real interest rate .