Question 1

The supply of loanable funds curve has a ________ slope and the demand for loanable funds curve has a ________ slope.

Accepted Answer

A)  positive; positive 
B)  positive; negative 
C)  negative; positive 
D)  negative; negative 
E)  vertical; horizontal 
A)  positive; positive 
B)  positive; negative 
C)  negative; positive 
D)  negative; negative 
E)  vertical; horizontal

Question 2

If the real interest rate falls, there is

Accepted Answer

A)  an upward movement along the supply of loanable funds curve. 
B)  a downward movement along the supply of loanable funds curve. 
C)  a rightward shift of the supply curve of loanable funds and no shift in the demand for loanable funds curve. 
D)  a leftward shift of the supply of loanable funds curve and no shift in the demand for loanable funds curve. 
E)  a leftward shift of the supply of loanable funds curve and a rightward shift in the demand for loanable funds curve. 
A)  an upward movement along the supply of loanable funds curve. 
B)  a downward movement along the supply of loanable funds curve. 
C)  a rightward shift of the supply curve of loanable funds and no shift in the demand for loanable funds curve. 
D)  a leftward shift of the supply of loanable funds curve and no shift in the demand for loanable funds curve. 
E)  a leftward shift of the supply of loanable funds curve and a rightward shift in the demand for loanable funds curve.

Question 3

A fall in the real interest rate brings a

Accepted Answer

A)  movement down along the demand for loanable funds curve but no shift in the curve. 
B)  rightward shift of the demand for loanable funds curve but no movement along the curve. 
C)  movement up along the demand for loanable funds curve. 
D)  leftward shift of the demand for loanable funds curve. 
E)  movement down along the demand for loanable funds curve and a rightward shift of the demand for loanable funds curve. 
A)  movement down along the demand for loanable funds curve but no shift in the curve. 
B)  rightward shift of the demand for loanable funds curve but no movement along the curve. 
C)  movement up along the demand for loanable funds curve. 
D)  leftward shift of the demand for loanable funds curve. 
E)  movement down along the demand for loanable funds curve and a rightward shift of the demand for loanable funds curve.

Question 4

Which of the following formulas is correct?

Accepted Answer

A)  Net investment = gross investment + depreciation 
B)  Net investment = gross investment + capital 
C)  Net investment = gross investment - depreciation 
D)  Net investment = gross investment - saving 
E)  Net investment = gross investment - wealth 
A)  Net investment = gross investment + depreciation 
B)  Net investment = gross investment + capital 
C)  Net investment = gross investment - depreciation 
D)  Net investment = gross investment - saving 
E)  Net investment = gross investment - wealth

Question 5

Bill's Lawn service starts the year with 20 lawn mowers.During the year, 3 mowers break and are not worth fixing.Bill also expands his business and buys 10 more mowers.Bill's net investment is ________ mowers.

Accepted Answer

A)  10 
B)  13 
C)  7 
D)  27 
E)  20 
A)  10 
B)  13 
C)  7 
D)  27 
E)  20

Question 6

The figure above shows the supply of loanable funds curve.
-If the supply curve of loanable funds shifts rightward from the curve shown in the figure above, the shift could be the result of

Accepted Answer

A)  a rise in expected future income. 
B)  a decrease in disposable income. 
C)  a decrease in the demand for loanable funds. 
D)  a decrease in the supply of loanable funds. 
E)  a decrease in wealth. 
A)  a rise in expected future income. 
B)  a decrease in disposable income. 
C)  a decrease in the demand for loanable funds. 
D)  a decrease in the supply of loanable funds. 
E)  a decrease in wealth.

Question 7

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

Accepted Answer

A)  $80 billion. 
B)  $30 billion. 
C)  $50 billion. 
D)  $90 billion. 
E)  $10 billion. 
A)  $80 billion. 
B)  $30 billion. 
C)  $50 billion. 
D)  $90 billion. 
E)  $10 billion.

Question 8

List three different types of financial markets and discuss the type of financial instruments traded in the markets.

Accepted Answer

Financial markets are the stock market,

Question 9

If expected profit falls, the demand for loanable funds curve shifts ________ and the real interest rate ________.

Accepted Answer

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

Question 10

If a firm wants to borrow $10 million and the real interest rate increases from 5 percent to 6 percent, then the cost of the investment has increased by

Accepted Answer

A)  $1 million per year. 
B)  $100,000 per year. 
C)  $6 million per year. 
D)  $600,000 per year. 
E)  nothing because the real interest rate is the return the firm will earn on its investment. 
A)  $1 million per year. 
B)  $100,000 per year. 
C)  $6 million per year. 
D)  $600,000 per year. 
E)  nothing because the real interest rate is the return the firm will earn on its investment.

Question 11

$$\begin{array} { c c c } 
\begin{array} { c } 
\text { Real interest rate } \
\text { (percent per year) }
\end{array} & \begin{array} { c } 
\text { Demand for loanable funds Supply of loanable funds } \
\text { (billions of } 2005 \text { dollars) }
\end{array} & \text { (billions of 2005 dollars) } \
\hline 10 & 7 & 15 \
8 & 9 & 13 \
6 & 11 & 11 \
4 & 14 & 9 \
2 & 17 & 7 \
\hline
\end{array}$$
-The table above shows the supply of loanable funds and the demand for loanable funds 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 12

A distinction between stocks and bonds is that

Accepted Answer

A)  bonds can be traded many times in the bond market, while stocks are non-transferable. 
B)  although the return on a bond is determined by the forces of supply and demand, the return on a stock is set by the stock exchange. 
C)  bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone. 
D)  stocks represent ownership claims to the company and bonds do not. 
E)  bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time. 
A)  bonds can be traded many times in the bond market, while stocks are non-transferable. 
B)  although the return on a bond is determined by the forces of supply and demand, the return on a stock is set by the stock exchange. 
C)  bonds cannot be sold to anyone other than the company that issued it while stocks can be resold to anyone. 
D)  stocks represent ownership claims to the company and bonds do not. 
E)  bonds must be held for a fixed number of years whereas stocks can be bought and sold at any time.

Question 13

Describe two main differences between bonds and stocks.

Accepted Answer

Stocks represent ownership of the issuin

Question 14

With no Ricardo-Barro effect, a government budget surplus

Accepted Answer

A)  decreases the supply of loanable funds and lowers the real interest rate. 
B)  decreases the demand for loanable funds and increases the real interest rate. 
C)  increases the demand for loanable funds and lowers the real interest rate. 
D)  increases the supply of loanable funds and lowers the real interest rate. 
E)  increases the demand for loanable funds and raises the real interest rate. 
A)  decreases the supply of loanable funds and lowers the real interest rate. 
B)  decreases the demand for loanable funds and increases the real interest rate. 
C)  increases the demand for loanable funds and lowers the real interest rate. 
D)  increases the supply of loanable funds and lowers the real interest rate. 
E)  increases the demand for loanable funds and raises the real interest rate.

Question 15

In the loanable funds market, what will change to eliminate a shortage of loanable funds and how is the shortage eliminated?

Accepted Answer

The real interest rate changes to elimin

Question 16

Gross investment equals

Accepted Answer

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

Question 17

Which of the following represents partial ownership of a firm?

Accepted Answer

A)  stocks 
B)  bonds 
C)  short-term securities 
D)  loans 
E)  commodities 
A)  stocks 
B)  bonds 
C)  short-term securities 
D)  loans 
E)  commodities

Question 18

Explain how each of the following events would affect the supply of loanable funds curve:
a. The economy is in a recession so people's disposable income is lower.
b. The stock market is booming so people's wealth is higher.
c. The future looks a bit more grim, so expected future income is lower.
d. The real interest rate increases.

Accepted Answer

a. Disposable income is lower, so saving

Question 19

-In the figure above, the shift from DLF₁ to DLF₂ could result from

Accepted Answer

A)  the economy entering a strong expansion. 
B)  an increase in the nominal interest rate. 
C)  a decrease in the real interest rate. 
D)  an increase in a government budget surplus. 
E)  the economy entering a recession. 
A)  the economy entering a strong expansion. 
B)  an increase in the nominal interest rate. 
C)  a decrease in the real interest rate. 
D)  an increase in a government budget surplus. 
E)  the economy entering a recession.

Question 20

The Ricardo-Barro effect says that a government budget deficit leads to

Accepted Answer

A)  a higher real interest rate. 
B)  a lower real interest rate. 
C)  no change in the real interest rate. 
D)  an increase in demand for loanable funds. 
E)  an increase in the quantity of investment. 
A)  a higher real interest rate. 
B)  a lower real interest rate. 
C)  no change in the real interest rate. 
D)  an increase in demand for loanable funds. 
E)  an increase in the quantity of investment.

The supply of loanable funds curve has a slope and the demand for loanable funds curve has a slope.

If the real interest rate falls, there is

A fall in the real interest rate brings a

Which of the following formulas is correct?

Bill's Lawn service starts the year with 20 lawn mowers.During the year, 3 mowers break and are not worth fixing.Bill also expands his business and buys 10 more mowers.Bill's net investment is ________ mowers.

The figure above shows the supply of loanable funds curve. -If the supply curve of loanable funds shifts rightward from the curve shown in the figure above, the shift could be the result of

List three different types of financial markets and discuss the type of financial instruments traded in the markets.

If expected profit falls, the demand for loanable funds curve shifts and the real interest rate .

If a firm wants to borrow $10 million and the real interest rate increases from 5 percent to 6 percent, then the cost of the investment has increased by

A distinction between stocks and bonds is that

Describe two main differences between bonds and stocks.

With no Ricardo-Barro effect, a government budget surplus

In the loanable funds market, what will change to eliminate a shortage of loanable funds and how is the shortage eliminated?

Gross investment equals

Which of the following represents partial ownership of a firm?

-In the figure above, the shift from DLF₁ to DLF₂ could result from

The Ricardo-Barro effect says that a government budget deficit leads to

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 supply of loanable funds curve has a ________ slope and the demand for loanable funds curve has a ________ slope.

If the real interest rate falls, there is

A fall in the real interest rate brings a

Which of the following formulas is correct?

Bill's Lawn service starts the year with 20 lawn mowers.During the year, 3 mowers break and are not worth fixing.Bill also expands his business and buys 10 more mowers.Bill's net investment is ________ mowers.

The figure above shows the supply of loanable funds curve. -If the supply curve of loanable funds shifts rightward from the curve shown in the figure above, the shift could be the result of

List three different types of financial markets and discuss the type of financial instruments traded in the markets.

If expected profit falls, the demand for loanable funds curve shifts ________ and the real interest rate ________.

If a firm wants to borrow $10 million and the real interest rate increases from 5 percent to 6 percent, then the cost of the investment has increased by

A distinction between stocks and bonds is that

Describe two main differences between bonds and stocks.

With no Ricardo-Barro effect, a government budget surplus

In the loanable funds market, what will change to eliminate a shortage of loanable funds and how is the shortage eliminated?

Gross investment equals

Which of the following represents partial ownership of a firm?

-In the figure above, the shift from DLF₁ to DLF₂ could result from

The Ricardo-Barro effect says that a government budget deficit leads to

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

The supply of loanable funds curve has a slope and the demand for loanable funds curve has a slope.

If expected profit falls, the demand for loanable funds curve shifts and the real interest rate .