ECON 1022 Quiz #4
Other things the same, as the maturity of a bond becomes stronger, the bond will pay
a higher interest rate because it has more risk.
Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?
a movement from point A to point B
If there is a shortage of loanable funds, then
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
If there is a surplus of loanable funds, then
the quantity supplied is greater than the quantity demanded and the interest rate will fall.
Refer to Figure 26-1. What is measured along the vertical axis of the graph?
the real interest rate
When the Federal Reserve sells assets from its portfolio to the public with the intent of changing the money supply,
those assets are government bonds and the Fed's reason for selling them is to decrease the money supply.
For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. The national saving is
$1 trillion
Refer to Table 1. Assume the Fed's reserve requirement is 10 percent and that the Bank of Springfield makes new loans so as to make its new reserve ratio 10 percent. From then on, no bank holds any excess reserves. Assume also that people hold only deposits and no currency. Then by what amount does the economy's money supply increase?
$18,000
For a closed economy, GDP is $12 trillion, consumption is $7 trillion, taxes net of transfers are $3 trillion and the government runs a deficit of $1 trillion. The private saving is
$2 trillion
In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?
$5 billion and $50 billion
Refer to Table 1. Assuming the Bank of Springfield and all other banks have the same reserve ratio, then what is the value of the money multiplier?
9.1
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that
Bond A has a term of 20 years and Bond B has a term of 2 years.
A bank has a 20 percent reserve requirement, $8,000 in loans, and has loaned out all it can given the reserve requirement.
It has $10,000 in deposits.
What does the Federal Reserve not do?
Makes loans to any qualified business that requests one.
Suppose private saving in a closed economy is $12b and investment is $10b.
The government budget deficit must equal $2b.
Interest rates fall and investment falls. What could explain these changes?
The government repeals an investment tax credit.
Suppose a country has a consumption tax that is similar to a state sales tax. If its government were to eliminate the consumption tax and replace it with an income tax that includes an income tax on interest from savings, what would happen?
The interest rate would increase and saving would decrease.
Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?
The supply of loanable funds shifted left.
Other things the same, which bond would you expect to pay the lowest interest rate?
a bond issued by a state with a very good credit rating
A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
bond.
When the Fed decreases the discount rate, banks will
borrow more from the Fed and lend more to the public. The money supply increases.
ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?
both ABC and JLG
A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because
in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.
Other things the same, if reserve requirements are increased, the reserve ratio
increases, the money multiplier decreases, and the money supply decreases.
A mutual fund
is an institution that sells shares to the public and uses the proceeds to buy a selection of various types of stocks, bonds, or both stocks and bonds.
If the money multiplier is 3 and the Fed buys $50,000 worth of bonds, what happens to the money supply?
it increases by $150,000
If a reform of the tax laws encourages greater saving, the result would be
lower interest rates and greater investment.
The slope of the demand for loanable funds curve represents the
negative relation between the real interest rate and investment.
Other things the same, when the interest rate rises,
people would want to lend more, making the quantity of loanable funds supplied increase.
For an imaginary closed economy, T=$5,000; S=$11,000; C=$48,000; and the government is running a budget surplus of $1,000. Then
private saving = $10,000 GDP = $63,000
A bond buyer is a
saver. Long term bonds have more risk than short term bonds.
Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the
supply of loanable funds to the right, causing interest rates to fall.
Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then
the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
the government has a budget deficit and investment is 2,000
Refer to Figure 26-4. The position and/or slope of the Supply curve are influenced by
the level of public saving, the level of national saving, and decision made by people who have extra income they want to save and lend out (all of the above are correct)
Refer to Figure 26-2. What is measured along the horizontal axis of the graph?
the quantity of loanable funds