Question 1

The demand for loanable funds curve slopes downward because the

Accepted Answer

A)  higher the real interest rate, the lower the cost of investment. 
B)  expected rate of profit is related positively to the real interest rate. 
C)  price of bonds and stocks is not related to the real interest rate. 
D)  real interest rate is the opportunity cost of investment. 
E)  expected rate of profit is factor that "rewards" firms for their investment. 
A)  higher the real interest rate, the lower the cost of investment. 
B)  expected rate of profit is related positively to the real interest rate. 
C)  price of bonds and stocks is not related to the real interest rate. 
D)  real interest rate is the opportunity cost of investment. 
E)  expected rate of profit is factor that "rewards" firms for their investment.

Question 2

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Real interest rate } \
\text { (percent per year) }
\end{array} & \begin{array} { c } 
\text { Demand for loanable funds Supply of loanable funds } \
\text { (billions of 2005 dollars) } \
\text { (billions of 2005 dollars) }
\end{array} \
\hline 12 & 8.0 & 13.0 \
10 & 9.5 & 12.0 \
8 & 11.0 & 11.0 \
6 & 12.5 & 10.0 \
4 & 14.0 & 9.0 \
2 & 15.5 & 8.0
\end{array}$$
-The table above gives the demand for loanable funds and private supply of loanable funds schedules.
a. What is the equilibrium real interest rate and quantity of loanable funds?
b. Suppose that the government has a budget surplus of $2.5 billion.If there is no Ricardo-Barro effect, what is the equilibrium real interest rate and quantity of loanable funds?

Accepted Answer

a. The equilibrium real interest rate is

Question 3

An increase in wealth leads to ________ loanable funds.

Accepted Answer

A)  an increase in the supply of 
B)  an increase in the demand for 
C)  a decrease in the supply of 
D)  a decrease in the demand for 
E)  no change in either the supply of loanable funds or the demand for 
A)  an increase in the supply of 
B)  an increase in the demand for 
C)  a decrease in the supply of 
D)  a decrease in the demand for 
E)  no change in either the supply of loanable funds or the demand for

Question 4

The Zonamo company produces waste disposal machines and sells them to militaries all over the world.The company started last year with $10 million of capital on hand and invested $15 million in new capital throughout the year.At the end of the year, the company's capital stock was $17 million.Hence, for the year, depreciation equaled ________ and net investment equaled ________.

Accepted Answer

A)  $8 million; $7 million 
B)  $7 million; $8 million 
C)  $25 million; $5 million 
D)  $5 million; $5 million 
E)  $8 million; $15 million 
A)  $8 million; $7 million 
B)  $7 million; $8 million 
C)  $25 million; $5 million 
D)  $5 million; $5 million 
E)  $8 million; $15 million

Question 5

The difference between the amount of capital at the beginning of a year and the amount of capital at the end of the year is equal to

Accepted Answer

A)  net investment. 
B)  capital consumption. 
C)  gross investment. 
D)  financial consumption. 
E)  depreciation. 
A)  net investment. 
B)  capital consumption. 
C)  gross investment. 
D)  financial consumption. 
E)  depreciation.

Question 6

In 2008 the fall in the value of the stock market decreased people's wealth.As a result of this change alone, the supply of loanable funds

Accepted Answer

A)  increased. 
B)  did not change and there was no movement along the supply of loanable funds curve. 
C)  decreased. 
D)  did not change and there was an upward movement along the supply of loanable funds curve. 
E)  did not change and there was a downward movement along the supply of loanable funds curve. 
A)  increased. 
B)  did not change and there was no movement along the supply of loanable funds curve. 
C)  decreased. 
D)  did not change and there was an upward movement along the supply of loanable funds curve. 
E)  did not change and there was a downward movement along the supply of loanable funds curve.

Question 7

Suppose the government has a budget surplus.Then

Accepted Answer

A)  private saving is equal to investment. 
B)  private saving is greater than investment and government saving is positive 
C)  private saving is less than investment and government saving is positive. 
D)  private saving is greater than investment and government saving is positive. 
E)  private saving is greater than investment and government saving is negative. 
A)  private saving is equal to investment. 
B)  private saving is greater than investment and government saving is positive 
C)  private saving is less than investment and government saving is positive. 
D)  private saving is greater than investment and government saving is positive. 
E)  private saving is greater than investment and government saving is negative.

Question 8

-Using the figure above, show the effect on the real interest rate and the quantity of loanable funds of an increase in expected profit.

Accepted Answer

@#IMG-DLM& The increase in expected profit increas

Question 9

During 2009, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000.If Barbara's wealth was $4,000 at the beginning of 2009, at the end of 2009 Barbara's wealth was

Accepted Answer

A)  $2,000. 
B)  $4,000. 
C)  $5,000. 
D)  $6,000. 
E)  $60,000. 
A)  $2,000. 
B)  $4,000. 
C)  $5,000. 
D)  $6,000. 
E)  $60,000.

Question 10

In the late 1990s, the U.S.federal government had a budget surplus.If there is no Ricardo-Barro effect, these surpluses ________ the supply of loanable funds and ________ the real interest rate.

Accepted Answer

A)  increased; raised 
B)  increased; lowered 
C)  decreased; raised 
D)  decreased; lowered 
E)  did not change; did not change 
A)  increased; raised 
B)  increased; lowered 
C)  decreased; raised 
D)  decreased; lowered 
E)  did not change; did not change

Question 11

A decrease in expected future income leads to a

Accepted Answer

A)  rightward shift of the demand for loanable funds curve. 
B)  downward movement along the supply of loanable funds curve. 
C)  rightward shift of the supply of loanable funds curve. 
D)  leftward shift of the supply of loanable funds curve. 
E)  leftward shift of the demand for loanable funds curve. 
A)  rightward shift of the demand for loanable funds curve. 
B)  downward movement along the supply of loanable funds curve. 
C)  rightward shift of the supply of loanable funds curve. 
D)  leftward shift of the supply of loanable funds curve. 
E)  leftward shift of the demand for loanable funds curve.

Question 12

The tendency for higher government budget deficits to decrease investment is called the

Accepted Answer

A)  deficit effect. 
B)  Ricardo-Barro effect. 
C)  wealth effect. 
D)  crowding-out effect. 
E)  inflation effect. 
A)  deficit effect. 
B)  Ricardo-Barro effect. 
C)  wealth effect. 
D)  crowding-out effect. 
E)  inflation effect.

Question 13

Federal Express's purchase of trucks and planes

Accepted Answer

A)  are financial capital. 
B)  include depreciation. 
C)  is an example of physical capital. 
D)  creates wealth. 
E)  reflect capital gains. 
A)  are financial capital. 
B)  include depreciation. 
C)  is an example of physical capital. 
D)  creates wealth. 
E)  reflect capital gains.

Question 14

When wealth ________, saving supply ________ and the supply of loanable funds curve shifts ________.

Accepted Answer

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

Question 15

-In the figure above, the DLF curve is the demand for loanable funds curve and the PDLF curve is the private demand for loanable funds curve.If there is no Ricardo-Barro effect, the figure shows the situation in which the government has a ________ so that the equilibrium real interest rate is ________ and the equilibrium quantity of investment is ________.

Accepted Answer

A)  budget surplus; 4 percent; $1 trillion 
B)  budget deficit; 4 percent; $1 trillion 
C)  budget deficit; 6 percent; $1.5 trillion 
D)  budget surplus; 6 percent; $1.5 trillion 
E)  balanced budget; 6 percent; $1.5 trillion 
A)  budget surplus; 4 percent; $1 trillion 
B)  budget deficit; 4 percent; $1 trillion 
C)  budget deficit; 6 percent; $1.5 trillion 
D)  budget surplus; 6 percent; $1.5 trillion 
E)  balanced budget; 6 percent; $1.5 trillion

Question 16

The figure above shows the supply of loanable funds curve.
-If saving supply decreases, 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 17

An example of financial capital is

Accepted Answer

A)  machines. 
B)  buildings. 
C)  computers. 
D)  bonds. 
E)  the talents of a highly paid movie star. 
A)  machines. 
B)  buildings. 
C)  computers. 
D)  bonds. 
E)  the talents of a highly paid movie star.

Question 18

A fall in the real interest rate brings a

Accepted Answer

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

Question 19

In 2009, which of the following events described the demand for loanable funds?
i. The real interest rate declined and positively affected the quantity of loanable funds demanded.
ii. Firms increased their investment demand.
iii. Firms' profit expectations negatively affected the demand for loanable funds.

Accepted Answer

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

Question 20

A stockholder ________ an owner of the firm and a bondholder ________ an owner of the firm.

Accepted Answer

A)  is; is 
B)  is; is not 
C)  is not; is 
D)  is not; is not 
E)  might be; is not 
A)  is; is 
B)  is; is not 
C)  is not; is 
D)  is not; is not 
E)  might be; is not

The demand for loanable funds curve slopes downward because the

An increase in wealth leads to ________ loanable funds.

The difference between the amount of capital at the beginning of a year and the amount of capital at the end of the year is equal to

In 2008 the fall in the value of the stock market decreased people's wealth.As a result of this change alone, the supply of loanable funds

Suppose the government has a budget surplus.Then

-Using the figure above, show the effect on the real interest rate and the quantity of loanable funds of an increase in expected profit.

During 2009, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000.If Barbara's wealth was $4,000 at the beginning of 2009, at the end of 2009 Barbara's wealth was

In the late 1990s, the U.S.federal government had a budget surplus.If there is no Ricardo-Barro effect, these surpluses the supply of loanable funds and the real interest rate.

A decrease in expected future income leads to a

The tendency for higher government budget deficits to decrease investment is called the

Federal Express's purchase of trucks and planes

When wealth , saving supply and the supply of loanable funds curve shifts .

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

An example of financial capital is

A fall in the real interest rate brings a

A stockholder an owner of the firm and a bondholder an owner of the firm.

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

The demand for loanable funds curve slopes downward because the

An increase in wealth leads to ________ loanable funds.

The difference between the amount of capital at the beginning of a year and the amount of capital at the end of the year is equal to

In 2008 the fall in the value of the stock market decreased people's wealth.As a result of this change alone, the supply of loanable funds

Suppose the government has a budget surplus.Then

-Using the figure above, show the effect on the real interest rate and the quantity of loanable funds of an increase in expected profit.

During 2009, Barbara earned $60,000 as a financial analyst, paid taxes of $5,000 and consumed $53,000.If Barbara's wealth was $4,000 at the beginning of 2009, at the end of 2009 Barbara's wealth was

In the late 1990s, the U.S.federal government had a budget surplus.If there is no Ricardo-Barro effect, these surpluses ________ the supply of loanable funds and ________ the real interest rate.

A decrease in expected future income leads to a

The tendency for higher government budget deficits to decrease investment is called the

Federal Express's purchase of trucks and planes

When wealth ________, saving supply ________ and the supply of loanable funds curve shifts ________.

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

An example of financial capital is

A fall in the real interest rate brings a

A stockholder ________ an owner of the firm and a bondholder ________ an owner of the firm.

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

In the late 1990s, the U.S.federal government had a budget surplus.If there is no Ricardo-Barro effect, these surpluses the supply of loanable funds and the real interest rate.

When wealth , saving supply and the supply of loanable funds curve shifts .

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

A stockholder an owner of the firm and a bondholder an owner of the firm.