ECON 210 Chapter 29 Review

Which of the following chains of logic explain the functions of banks in the process of economic growth? A.) Savers deposit their savings in banks. Banks engage in capital accumulation, which plays an important role in economic growth. B.) Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth. C.) Firms borrow from stock and bond markets issued through banks. These funds are used for investment, which leads to the capital accumulation that furthers economic growth. D.) The demand for loanable funds is determined by banks and that demand fuels investment that in turn furthers economic growth.

B

If individuals become more impatient, what will happen in the market for loanable funds? A.) The supply of loanable funds will increase, interest rates will rise, and the quantity of saving and borrowing will decrease. B.) The supply of loanable funds will increase, interest rates will fall, and the quantity of saving and borrowing will increase. C.) The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease. D.) The supply of loanable funds will decrease, interest rates will fall, and the quantity of saving and borrowing will increase.

C

Insecure property rights typically lead to: A.) an increase in the supply of savings. B.) an increase in the demand to borrow. C.) a decrease in the supply of savings. D.) a decrease in the demand to borrow.

C

Which of the following represents ownership in a corporation? A.) saving deposits B.) IOUs C.) stocks D.) bonds

C

Financial intermediaries: A.) profit by keeping resources in their least valuable uses. B.) are inefficient middlemen, raising the cost of economic activity. C.) have liabilities that exceed their assets. D.) reduce the costs of moving savings from savers to borrowers and investors.

D

Time preference is the desire to: A.) increase longevity in order to have a greater income. B.) maximize return on investment in the shortest amount of time. C.) save for a time when income will be reduced. D.) have goods and services sooner rather than later.

D

Which of the following is NOT a reason for the financial crisis of 2007-2008? A.) increases in the leverage ratios for financial intermediaries B.) excessive securitization of liabilities C.) collapse of the shadow banking system D.) excessive confidence about the stock market

D

Which of the following is TRUE about the lifecycle theory of savings? A.) People tend to save during the early years of their lifetimes, dissave during their prime working years, and borrow during their retirement years. B.) People tend to save during the early years of their lifetimes, borrow during their prime working years, and invest during their retirement years. C.) People tend to borrow during the early years of their lifetimes, invest during their prime working years, and save during their retirement years. D.) People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years.

D

If the government raises taxes on investment returns, then: A.) the demand for loanable funds will decrease and the equilibrium interest rate will decrease. B.) the demand for loanable funds will increase and the equilibrium interest rate will increase. C.) the supply of loanable funds will decrease and the equilibrium interest rate will increase. D.) the supply of loanable funds will increase and the equilibrium interest rate will decrease.

A

The process in which bank loans are bundled together and sold on the market as financial assets is called: A.) securitization. B.) consolidation. C.) grouping. D.) aggregation.

A

At lower interest rates, the cost of investing _____ and the quantity of funds demanded for investment _____. A.) increases; decreases B.) decreases; increases C.) increases; increases D.) decreases; decreases

B

Bond prices and bond interest rates move: A.) together when there is arbitrage. B.) in opposite directions. C.) in the same direction. D.) together when there is collateral damage.

B

If the interest rate increases, then: A.) the quantity saved will increase but the quantity supplied of loanable funds will decrease. B.) both the quantity saved and the quantity supplied of loanable funds will increase. C.) the quantity saved will decrease but the quantity supplied of loanable funds will increase. D.) both the quantity saved and the quantity supplied of loanable funds will decrease.

B

Savings is: A.) the purchase of new consumption goods. B.) income that is not spent on consumption goods. C.) the purchase of new capital goods. D.) income that is not spent on capital goods.

B

The main reason people save during their working years is: A.) an expectation that they will die early. B.) a preference toward a smooth consumption path over time. C.) a high time preference for the present. D.) a preference toward matching income with spending over time.

B