Chapter 9 Questions

Which of the following is TRUE about the lifecycle theory of savings?

People tend to borrow during the early years of their lifetimes, save during their prime working years, and dissave during their retirement years.

IS the relationship between interest rate and savings positive or negative/

Positive

Which of the following chains of logic explain the functions of banks in the process of economic growth?

Savers deposit their savings in banks. Banks direct these funds to firms that invest and engage in capital accumulation that furthers economic growth.

If individuals become more impatient, what will happen in the market for loanable funds?

The supply of loanable funds will decrease, interest rates will rise, and the quantity of saving and borrowing will decrease.

Insecure property rights typically lead to:

a decrease in the supply of savings.

The main reason people save during their working years is:

a preference toward a smooth consumption path over time.

If the interest rate increases, then:

both the quantity saved and the quantity supplied of loanable funds will increase.

At lower interest rates, the cost of investing _____ and the quantity of funds demanded for investment _____.

decreases; increases

Which of the following is NOT a reason for the financial crisis of 2007-2008?

excessive confidence about the stock market

Time preference is the desire to:

have goods and services sooner rather than later.

Bond prices and bond interest rates move:

in opposite directions.

Savings is:

income that is not spent on consumption goods.

What are some of the causes for the financial crisis of 2007-2008

increases in the leverage ratios for financial intermediaries collapse of the shadow banking system excessive securitization of liabilities

Financial intermediaries:

reduce the costs of moving savings from savers to borrowers and investors.

The process in which bank loans are bundled together and sold on the market as financial assets is called:

securitization.

Which of the following represents ownership in a corporation?

stocks

If the government raises taxes on investment returns, then:

the demand for loanable funds will decrease and the equilibrium interest rate will decrease.