ECON 2035 Chapter 4.4
The supply curve for loanable funds would increase due to a(n) A) increase in wealth. B) increase in expected inflation. C) decrease in the liquidity of bonds relative to other assets. D) increase in the information costs of bonds relative to other assets.
A
A decrease in real GDP will result in a(n) ________ in the demand for money and cause the nominal interest rate to ________. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase
A
A small open economy A) is unable to affect the world real interest rate by its borrowing and lending decisions. B) will always be a net borrower from abroad. C) will always be a net lender abroad. D) is almost never able to borrow abroad.
A
How can a global savings glut affect the United States? A) It can reduce the world real interest rate, thus encouraging borrowing by Americans. B) It can increase the world real interest rate, thus encouraging saving by Americans. C) It can reduce the supply of loanable funds for the United States. D) It can reduce the demand for loanable funds for the United States.
A
In the market for loanable funds, the seller is considered to be A) the lender. B) the borrower. C) the lender or the borrower depending upon the use to which the funds are put. D) the lender or the borrower depending upon whether interest rates are rising or falling.
A
The two most important factors that cause the money demand curve to shift are A) real GDP and the price level. B) nominal GDP and the Fed. C) the price level and the nominal interest rate. D) the nominal interest rate and the money supply.
A
Which of the following will cause the money demand curve to shift to the left? A) a decrease in real GDP B) an increase in the price level C) a decrease in the nominal interest rate D) an increase in the supply of money
A
A closed economy is one that A) has no government sector. B) neither borrows from nor lends to foreign countries. C) produces mainly agricultural goods. D) produces mainly manufactured goods.
B
A decrease in money supply will result in a(n) ________ in the quantity of money demanded and cause the nominal interest rate to ________. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase
B
An open economy is one that A) has a large government sector. B) lends and borrows in the international capital market. C) produces mainly agricultural goods. D) produces mainly manufactured goods.
B
If a large open economy, like the United States, reduces its budget deficit, what impact would this have on a small open economy? A) higher savings B) increased investment C) increased net savings D) no change in interest rates
B
If the Fed increases the money supply and as a result, households and firms buy more short- term financial assets, the prices of those short-term financial assets will ________ and the interest rates on those assets will ________. A) rise; rise B) rise; fall C) fall; rise D) fall; fall
B
In a large open economy A) domestic lending and borrowing decisions have no impact on the world real interest rate. B) an increase in the domestic supply of loanable funds would lower the world real interest rate. C) the domestic equilibrium real interest rate is determined independently of foreign borrowing and lending. D) an increase in the domestic demand for loanable funds would lower the world real interest rate.
B
In an open economy, desired domestic lending A) must equal desired domestic borrowing. B) must equal desired domestic borrowing plus the amount of international lending. C) is always greater than desired domestic borrowing. D) is always less than desired domestic borrowing.
B
In recent decades, the United States A) was essentially a closed economy. B) was generally a net borrower of foreign funds. C) was generally a net lender abroad. D) experienced a net outflow of savings.
B
Monetary policy has traditionally focused on the A) long-term nominal interest rate. B) short-term nominal interest rate. C) long-term real interest rate. D) short-term real interest rate.
B
Suppose that a small economy that had previously been closed becomes open. If its real interest rate had previously been below the world real interest rate, we would expect that A) the country's real interest rate would remain below the world level. B) the country would become a net lender abroad. C) the country would become a new borrower abroad. D) the amount of loanable funds supplied in the country would decline.
B
The demand for bonds is A) equivalent to the demand for loanable funds. B) equivalent to the supply of loanable funds. C) represented by an upward-sloping line when the price of bonds is on the vertical axis and the quantity of bonds demanded is on the horizontal axis. D) represented by a downward-sloping line when the interest rate is on the vertical axis and the quantity of bonds demanded is on the horizontal axis.
B
When nominal interest rates fall on financial assets such as U.S. Treasury bills, the amount of interest that households and firms A) gain by holding money decreases. B) lose by holding money decreases. C) lose by holding money increases. D) lose or gain by holding money does not change.
B
When nominal interest rates on financial assets are high, the opportunity cost of holding money is ________, so the quantity of money demanded by households and firms will be ________. A) high; high B) high; low C) low; high D) low; low
B
Which of the following will cause the money demand curve to shift to the right? A) a decrease in real GDP B) an increase in the price level C) an increase in the nominal interest rate D) a decrease in the supply of money
B
Consider an open economy that is a net borrower (like the United States). What would be the impact of a shift to a closed economy? A) domestic interest rates would decline B) domestic savings would decline C) domestic investment would decline D) net borrowing would increase
C
If the Fed decreases the money supply and as a result, households and firms buy fewer short- term financial assets, the prices of those short-term financial assets will ________ and the interest rates on those assets will ________. A) rise; rise B) rise; fall C) fall; rise D) fall; fall
C
Since Germany is a large open economy, the increase in German borrowing and investment in what was formerly East Germany in the early 1990s resulted in A) a decline in the world real interest rate. B) a shift to the right in the German supply of loanable funds curve. C) an increase in the real interest rate in the United States. D) a shift to the left in the German demand for loanable funds curve.
C
The equilibrium real interest rate in Belgium will be A) generally above the world real interest rate. B) generally below the world real interest rate. C) equal to the world real interest rate. D) determined by the equilibrium between desired domestic saving and desired domestic investment.
C
The supply curve of loanable funds slopes up because A) at higher bond prices more loanable funds will be supplied. B) higher interest rates reduce the inflation rate. C) an increase in the interest rate makes lenders more willing and able to supply more funds. D) a decrease in the interest rate makes lenders more willing and able to supply more funds.
C
The world real interest rate is A) set annually by a special commission at the United Nations. B) set annually by a special commission at the International Monetary Fund. C) determined in the international capital market. D) determined daily on the New York Stock Exchange.
C
When nominal interest rates on financial assets are low, the opportunity cost of holding money is ________, so the quantity of money demanded by households and firms will be ________. A) high; high B) high; low C) low; high D) low; low
C
When nominal interest rates rise on financial assets such as U.S. Treasury bills, the amount of interest that households and firms A) gain by holding money increases. B) lose by holding money decreases. C) lose by holding money increases. D) lose or gain by holding money does not change.
C
An increase in the price level will result in a(n) ________ in the demand for money and cause the nominal interest rate to ________. A) decrease; decrease B) decrease; increase C) increase; decrease D) increase; increase
D
If a small open economy reduces its budget deficit, the result will be A) a lower world real interest rate, but no change in the domestic real interest rate. B) a lower domestic real interest rate, but no change in the world real interest rate. C) lower domestic and world real interest rates. D) no change in either the domestic or world real interest rate.
D
In the market for loanable funds the price of the funds exchanged is A) the price of bonds. B) the volume of bonds purchased. C) the volume of bonds sold. D) the interest rate.
D
Loanable funds refers to A) only those funds loaned from one bank to another. B) only those funds loaned to banks by the Federal Reserve. C) only those funds loaned by banks to private individuals. D) all those funds changing hands between lenders and borrowers in the bond market.
D
The demand curve for loanable funds slopes down because A) at lower bond prices more loanable funds will be supplied. B) lower interest rates reduce the inflation rate. C) an increase in the interest rate makes borrowers more willing and able to demand more funds. D) a decrease in the interest rate makes borrowers more willing and able to demand more funds.
D
Which of the following is a possible impact of a global savings glut on a small open economy? A) interest rate would increase B) interest rate would decrease C) domestic savings would increase D) domestic investment would increase
D
Which of the following statements is correct? A) The supply curve for loanable funds slopes up, whereas the supply curve for bonds slopes down. B) The demand curve for loanable funds slopes up, whereas the demand curve for bonds slopes down. C) The demand curve for loanable funds and the demand curve for bonds both slope up. D) The supply curve for bonds and the supply curve for loanable funds both slope up.
D