Macroecon Chapter 9: Practice Questions

The higher the _____ rate, the ____ the quantity of funds demanded for investment - interest; smaller - interest; greater - exchange; greater

interest; smaller

In comparison to a low-risk company, if a risky company wishes to borrow money it: - must promise a higher rate of interest bc lenders demand compensation for default risk - can offer interest rate below the T-bill rate bc T-Bills carry higher risk

must promise a higher rate of interest bc lenders demand compensation for default risk

When interest rate rise, bond prices fall. true or false

true

The rate of return for a zero-coupon bond can be expressed by: - [(FV/price) . 100 - (price/FV) . 100 -[(FV - price)/price] . 100

[(FV - price)/price] . 100

Financial intermediation may fail if something causes - an increase in the cost of intermediation - an increase in the demand for borrowing - a decrease in equilibrium interest rates

an increase in the cost of intermediation

All else equal, if consumers decide to borrow more, the - supply of funds in the loanable funds market will increase - demand for funds in the loanable funds market will increase - supply of funds in the loanable funds market will decrease

demand for funds in the loanable funds market will increase

Equilibrium in the market for loanable funds determines the - interest rate and the quantity of loanable funds - interest rate and the quantity of domestic savings - exchange rate and the quantity of domestic savings

interest rate and the quantity of loanable funds