Question 1

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to rise?

Accepted Answer

A)   Firms are more pessimistic,and governments run fewer deficits.
B)   A baby boom begins,and investor confidence rises.
C)   People have lower time preferences,and governments run larger deficits.
D)   People have lower time preferences,and capital is more productive.
E)   More individuals are middle-aged,and wealth increases.

Question 2

Refer to the following graph to answer the following questions: 
-Assuming the figure represents the market for loanable funds

Accepted Answer

A)   line 1 represents savings and point A would be a quantity supplied of loanable funds.
B)   line 1 represents investment demand and point C represents a quantity of loanable funds.
C)   the vertical axis represents investment demand because investment demand is completely inelastic.
D)   the horizontal axis represents the quantity of loanable funds and interest rate B represents a higher-than-equilibrium interest rate.
E)   line 1 represents savings and point C represents a quantity supplied of loanable funds.

Question 3

In the last decade,the U.S.savings rate has

Accepted Answer

A)   rebounded somewhat.
B)   dropped to new lows.
C)   leveled off around the historical average.
D)   begun to come down from unusually high levels.
E)   climbed to historic highs.

Question 4

If foreign income and wealth decrease,this would most likely

Accepted Answer

A)   not affect the market for loanable funds.
B)   cause the supply of loanable funds to increase.
C)   cause the supply of loanable funds to decrease.
D)   cause the demand for loanable funds to increase in order for foreigners to maintain consumption.
E)   cause the demand for loanable funds to decrease.

Question 5

The real interest rate in 2012 was

Accepted Answer

A)   about 9 percent.
B)   about 7 percent.
C)   about 5 percent.
D)   about 3 percent.
E)   a negative number.

Question 6

A profit-maximizing firm will borrow money at a given interest rate,and use that money to fund an investment,if and only if the

Accepted Answer

A)   interest rate is less than the expected rate of return on the investment.
B)   interest rate is lower than rates expected in the near future.
C)   planned investment is expected to be profitable.
D)   interest rate is lower than it has been in the recent past.
E)   interest rate is less than the firm's historic profitability rate.

Question 7

The gap between the real and nominal interest rate represents

Accepted Answer

A)   the inflationary premium.
B)   the time preference.
C)   the difference from what the lender receives and the borrower pays.
D)   consumption smoothing.
E)   a surplus of loanable funds.

Question 8

Stewart Shopaholic,a compulsive shopper who likes to spend a lot of money all the time,

Accepted Answer

A)   has a high time preference.
B)   has a low time preference.
C)   prefers to borrow at the nominal rate,rather than the real rate of interest,if inflation is positive.
D)   is likely a supplier of loanable funds.
E)   would best be described as an "income smoother" rather than a "consumption smoother."

Question 9

What is meant by the savings rate,and what is the history of the savings rate in the United States over the last 50 years or so? Sketch a graph to illustrate.

Accepted Answer

The savings rate is the fraction of afte...

Question 10

You are thinking about buying a new car and will borrow $20,000 for this purchase at a 5 percent fixed rate for exactly one year.The lender (correctly) assumes that inflation will be 2 percent this year.Based on the above information and assuming you adhere to the terms of the loan,you will pay back the lender exactly ________,which will represent ________ of purchasing power.

Accepted Answer

A)   $20,000; $19,000
B)   $21,000; $21,000
C)   $21,000; $21,400
D)   $21,000; $20,600
E)   $19,600; $20,000

Question 11

Assume an epidemic hits a nation hard.As a result,people now have lower life expectancies.The most likely result would be

Accepted Answer

A)   a higher supply of loanable funds.
B)   a higher demand for loanable funds.
C)   a lower supply of loanable funds.
D)   higher productivity of capital.
E)   a decrease in equilibrium interest rates.

Question 12

What does it mean if we say that in the United States,firms are "net borrowers," and how is this reflected in the market for loanable funds?

Accepted Answer

This means that although some firms are ...

Question 13

Equilibrium in the loanable funds market means the

Accepted Answer

A)   interest rate at which savings equals consumption.
B)   interest rate at which investment equals consumption.
C)   interest rate at which investment equals savings.
D)   dollar price at which investment equals savings.
E)   dollar price at which savings equals consumption.

Question 14

Those who believe that the overall decline in the U.S.savings rate is real generally explain it in terms of a

Accepted Answer

A)   long-term decline in income and wealth.
B)   generally upward trend in time preferences.
C)   gradual erosion of real estate values.
D)   shift in the age profile of the labor force.
E)   steady increase in consumption smoothing.

Question 15

The interest rate represents ________ to ________ and ________ to ________.

Accepted Answer

A)   profit; foreign entities; the cost of funds; savers
B)   the cost of funds; corporations; a return; governments
C)   profit; governments; the marginal rate of arbitrage; foreign entities
D)   the cost of borrowing; firms and governments; a reward to saving; households
E)   profit; arbitrage companies; loss; firms

Question 16

Explain how the loanable funds market is a link between micro and macro.(Hint: Which part of the economy is primarily affected by interest rates?)

Accepted Answer

It is a link between macro and micro bec...

Question 17

Wealth increases in the United States because the value of the stock market increases; if all else is equal,this would cause

Accepted Answer

A)   a larger gap between the real and nominal rates of interest.
B)   the demand for loanable funds to increase.
C)   the supply of loanable funds to increase.
D)   the supply of loanable funds to decrease.
E)   corporations to be more willing to borrow.

Question 18

You deposit $1,000.00 into an asset that pays 7 percent annual interest for eight years.At the end of the eight years,you would have

Accepted Answer

A)   $1,000.00.
B)   $1,560.00.
C)   $1,718.19.
D)   $10,260.00.
E)   $1,605.78

Question 19

Firms expect more sales and profits in the near future; this would cause

Accepted Answer

A)   the demand for loanable funds to increase.
B)   the supply of loanable funds to increase.
C)   both the demand and supply of loanable funds to increase.
D)   both the demand and supply of loanable funds to decrease.
E)   lower interest rates in the near future.

Question 20

Which is a correct version of the Fisher equation?

Accepted Answer

A)   real interest rate = nominal interest rate+inflation rate
B)   nominal interest rate = real interest rate +inflation rate
C)   real interest rate= inflation rate - nominal interest rate
D)   real interest rate - nominal interest rate =inflation rate
E)   nominal interest rate + real interest rate = inflation rate

Exam 22: Savings,interest Rates,and the Market for Loanable Funds

Firms expect more sales and profits in the near future; this would cause

Correct Answer
verified

What is meant by the savings rate,and what is the history of the savings rate in the United States over the last 50 years or so? Sketch a graph to illustrate.

Correct Answer
verified
The savings rate is the fraction of afte...
View Answer

Those who believe that the overall decline in the U.S.savings rate is real generally explain it in terms of a

Correct Answer
verified

Assume an epidemic hits a nation hard.As a result,people now have lower life expectancies.The most likely result would be

Correct Answer
verified

What does it mean if we say that in the United States,firms are "net borrowers," and how is this reflected in the market for loanable funds?

Correct Answer
verified
This means that although some firms are ...
View Answer

A profit-maximizing firm will borrow money at a given interest rate,and use that money to fund an investment,if and only if the

Correct Answer
verified

Correct Answer
verified

The real interest rate in 2012 was

Correct Answer
verified

If foreign income and wealth decrease,this would most likely

Correct Answer
verified

Stewart Shopaholic,a compulsive shopper who likes to spend a lot of money all the time,

Correct Answer
verified

The gap between the real and nominal interest rate represents

Correct Answer
verified

You deposit $1,000.00 into an asset that pays 7 percent annual interest for eight years.At the end of the eight years,you would have

Correct Answer
verified

Which is a correct version of the Fisher equation?

Correct Answer
verified

Explain how the loanable funds market is a link between micro and macro.(Hint: Which part of the economy is primarily affected by interest rates?)

Correct Answer
verified
It is a link between macro and micro bec...
View Answer

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to rise?

Correct Answer
verified

Refer to the following graph to answer the following questions: -Assuming the figure represents the market for loanable funds

Correct Answer
verified

In the last decade,the U.S.savings rate has

Correct Answer
verified

Equilibrium in the loanable funds market means the

Correct Answer
verified

The interest rate represents to and to .

Correct Answer
verified

Wealth increases in the United States because the value of the stock market increases; if all else is equal,this would cause

Correct Answer
verified

Exam 22: Savings,interest Rates,and the Market for Loanable Funds

Firms expect more sales and profits in the near future; this would cause

Correct AnswerverifiedShow Answer

What is meant by the savings rate,and what is the history of the savings rate in the United States over the last 50 years or so? Sketch a graph to illustrate.

Correct AnswerverifiedThe savings rate is the fraction of afte...View AnswerShow Answer

Those who believe that the overall decline in the U.S.savings rate is real generally explain it in terms of a

Correct AnswerverifiedShow Answer

Assume an epidemic hits a nation hard.As a result,people now have lower life expectancies.The most likely result would be

Correct AnswerverifiedShow Answer

What does it mean if we say that in the United States,firms are "net borrowers," and how is this reflected in the market for loanable funds?

Correct AnswerverifiedThis means that although some firms are ...View AnswerShow Answer

A profit-maximizing firm will borrow money at a given interest rate,and use that money to fund an investment,if and only if the

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The real interest rate in 2012 was

Correct AnswerverifiedShow Answer

If foreign income and wealth decrease,this would most likely

Correct AnswerverifiedShow Answer

Stewart Shopaholic,a compulsive shopper who likes to spend a lot of money all the time,

Correct AnswerverifiedShow Answer

The gap between the real and nominal interest rate represents

Correct AnswerverifiedShow Answer

You deposit $1,000.00 into an asset that pays 7 percent annual interest for eight years.At the end of the eight years,you would have

Correct AnswerverifiedShow Answer

Which is a correct version of the Fisher equation?

Correct AnswerverifiedShow Answer

Explain how the loanable funds market is a link between micro and macro.(Hint: Which part of the economy is primarily affected by interest rates?)

Correct AnswerverifiedIt is a link between macro and micro bec...View AnswerShow Answer

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to rise?

Correct AnswerverifiedShow Answer

Refer to the following graph to answer the following questions: -Assuming the figure represents the market for loanable funds

Correct AnswerverifiedShow Answer

In the last decade,the U.S.savings rate has

Correct AnswerverifiedShow Answer

Equilibrium in the loanable funds market means the

Correct AnswerverifiedShow Answer

The interest rate represents ________ to ________ and ________ to ________.

Correct AnswerverifiedShow Answer

Wealth increases in the United States because the value of the stock market increases; if all else is equal,this would cause

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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The savings rate is the fraction of afte...
View Answer

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Correct Answer
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Correct Answer
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This means that although some firms are ...
View Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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It is a link between macro and micro bec...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The interest rate represents to and to .

Correct Answer
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Correct Answer
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