economics chapter 10

Answer the given four questions related to the market for loanable funds. 4. if the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act? a. the business will take out the loan b. the business will not take out the loan c. the business will demand more funds to cover the shortfall d. the business will proceed anyway, knowing that the return is only an estimate.

b. the business will not take out the loan

Select the proper term for each definition. c. funds that are kept in a bank that must be relinquished upon the owner's request

bank deposit

Please use the graph to answer the given questions. Assume the ppl act rationally. Given the market conditions, how much will be available in loanable funds? a. $30 billion b. $70 billion c. $50 billion d. $90 billion e. $10 billion

c. $50 billion

Answer the given four questions related to the market for loanable funds. 3. Which of the terms acts as the "price" in the market for loanable funds? a. supply b. capital c. interest rate d. demand

c. interest rate

select the statement that describes the fundamental relationship between savings and investment spending. a. investment spending promises higher financial returns than savings b. savings will increase as investment spending decreases c. investment spending and savings are always equal d. savings will decrease as investment spending increases

c. investment spending and savings are always equal

Answer the given four questions related to the market for loanable funds. 1.what effect will an increase in interest rates have on the quality of loanable funds supplied? a. there will be no change in quantity supplied b. quantity supplied will decrease c. some lenders will offer more whereas other offer less d. quantity supplied will increase

d. quantity supplied will increase

The accompanying graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially in equilibrium and inflation expectations are 2%. c. which effect below characterizes the relationship between inflation expectations and nominal interest rates? a. the Inflation effect b. the Pigou effect c. the Leontief Paradox d. The Fisher effect

d. the Fisher effect

Determine whether the statements listed regarding the savings-investment spending identity are true or false. b. National budget deficits are NOT included in the calculation of national savings.

false

After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. 1. Jolien decides not to take out a loan to fund expanding her grocery store b/c she projects it will only earn a return of 4%.

lower section of demand curve

After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. 2. Osi closely follows the market for United States Treasury Bonds. he is willing to invest in them anytime the rate of return is 5% or higher, and sees that this is the case.

lower section of supply curve

Indicate whether each of the following statement are true or false. a. an increase government spending can crowd out private investment.

TRUE

Indicate whether each of the following statement are true or false. c. an increase in private consumption may crowd out private investment.

TRUE

Please decide whether each of the scenarios related to the loanable funds market will result in a shift in supply or a shift in demand. d. As a result of a stock market boom, individuals begin to feel richer and spend more while also saving less.

shift in supply

capital inflow

the net amount of funds coming into a country

After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. 4. John will shift his stock investments to corporate bonds when they return at least 10%. They do not, so he stays with stocks.

upper section of supply curve

national savings

when the preceding term is combined with all of the privately-held savings from across the country

Select the proper term for each definition. d. an agreement between a lender and a borrower

loan

Select the proper term for each definition. b. a share of ownership in a company

stock

Budget balance

the difference between the amount the government collects and how much it spends

budget surplus

when the government spends less money than it takes in through taxes

Determine which type of financial asset is described in each scenario. a. Caleb has developed a prototype garlic-peeling device that he hopes to sell to the public. He is having his startup issue securities that offer buyers the promise to pay a specified amount of interest each year plus the principal in five years. Caleb is...

selling bonds

Please decide whether each of the scenarios related to the loanable funds market will result in a shift in supply or a shift in demand. c. due to an increase in revenues after a tax hike, the United States is able to eliminate the deficit and begins to maintain a balanced budget for the first time in several decades.

shift in demand

Please decide whether each of the scenarios related to the loanable funds market will result in a shift in supply or a shift in demand. a. China decides to reduce its capital investment in the United States, as it expects low returns due to a weak U.S. economy

shift in supply

Determine which type of financial asset is described in each scenario. b. Audrey wants to buy a new car but does not have enough cash. She gets funding from her local bank with the promise that she will make monthly payments for the next three years to repay the original amount lent to her plus 6% interest. Audrey is...

taking out a loan

Determine which type of financial asset is described in each scenario. e. Jack decides to build a chateau in the mountains of Colorado and operate it as a ski resort. He secures funding from a local commercial bank after discussing his business plan with the bank. He promises to pay back the principal plus interest over the next 20 years. Jack is...

taking out a loan

Determine whether the statements listed regarding the savings-investment spending identity are true or false. a. the budget balance can be either positive or negative.

true

Determine whether the statements listed regarding the savings-investment spending identity are true or false. c. the national savings are the combined value of all private savings and the budget balance.

true

Determine which type of financial asset is described in each scenario. c. Lyle and Shane start a business selling pencil sharpeners to elementary schools. Their company becomes an instant success, and they decide to allow ppl to start buying small shares of their company. This gives individuals who buy shares the right to vote in company decisions and a small percentage of the profits. Lyle and Shane are...

selling stock

Please decide whether each of the scenarios related to the loanable funds market will result in a shift in supply or a shift in demand. b. Calopolis, a college town in Northern California, has for many years banned the presence of fast food restaurants in city limits. As of 2012, however, the city will allow several fast food companies to open franchised locations.

shift in demand

Collaboration with Congress during the Clinton Administration allowed for an aggressive deficit-cutting plan to pass. As a result, the government was able to reach a balanced budget at the end of the 90's. Move the supply and/or demand curves to describe the expected effect that this deficit-reduction likely had upon the loanable funds market.

shift the demand curve to the left

budget deficit

the result when the government spends more money than it takes in through taxes

After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. 3. in order to open a new car wash facility expected to return 13%, Julius secures a loan.

upper section of demand curve

The accompanying graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially in equilibrium and inflation expectations are 2%. b. what is the real interest rate after the change in inflation expectations? a. 5% b. 7% c. 2% d. 3%

d. 3%

Which of these statements best summarizes the impact of the fisher effect? a. Interest rates are unpredictable b. inflation is ignored by borrowers c. the interest rate remains stable d. consumers consider future inflation

d. consumers consider future inflation

How are investment and national saving related in an economy like this? a. national saving is always less than investment b. investment is a component of national saving c. they are unrelated d. national saving equals investment

d. national saving equals investment

Determine whether the statements listed regarding the savings-investment spending identity are true or false. d. outflows of funds can only be generated by countries with a larger GDP per capita than the country receiving the funds.

false

Determine which type of financial asset is described in each scenario. d. Rand Capital, a financial industry conglomerate, pools together several hundred home mortgages and sells shares in them to groups of investors. However, many investors decide against this option b/c of the risk involved and the difficulty of assessing the quality of such a large number of individual mortgages. Rand Capital is...

floating a loan-backed security

In a small, closed economy, national income (GDP) is $250.00 million for the current quarter. Individuals have spent $150.00 million on the consumption of goods and services. They have paid a total of $25.00 million in taxes, and the government has spent $25.00 million on goods and services this quarter. How much is spent on investment in this economy? What is national saving in this economy?

investment: $75 million saving: $75 million

Adjust the graph to show how an increase of $25.8 billion dollars in the government's budget deficit affects this loan able funds market, holding all else equal. Select the answer that describes the adjustment in the loanable funds market. A. The deficit increases national savings and shifts the supply curve to the right, decreasing the interest rate and crowding out investment spending. B. The deficit increases the demand for loanable funds and shifts the demand curve to the right, increasi

B. The deficit increases the demand for loanable funds and shifts the demand curve to the right, increasing the interest rate and crowding out investment spending. Shift the demand curve to the right.

Indicate whether each of the following statement are true or false. b. an improvement in the budget balance increases the demand for financial capital.

FALSE

Indicate whether each of the following statement are true or false. d. lower interest rates can lead to private investment being crowded out.

FALSE

Indicate whether each of the following statement are true or false. e. a trade balance in surplus increases the supply of financial capital.

FALSE

Indicate whether each of the following statement are true or false. f. if private savings is equal to private investment, then there is neither a budget surplus nor a budget deficit.

FALSE

There are two aspects of efficiency that the equilibrium of market for loanable funds exhibits. Select the TWO statements that characterize these two aspects of efficiency.

Investment projects that are financed by savers have larger rates of return than projects that do not receive financing. Savers who lend money are willing to accept a lower minimum interest rate than potential savers who do not lend money.

Why do funding from national savings and funding obtained from capital inflows differ? Because a. national savings are repaid domestically, whereas capital inflows are repaid to a foreigner. b. capital inflows come from domestic individuals, whereas national savings come from government sources. c. funds from national savings must be repaid, whereas capital inflows do not have to be repaid. d. national saving funds can be used for a wider variety of investments than capital inflows.

a. national savings are repaid domestically, whereas capital inflows are repaid to a foreigner.

Answer the given four questions related to the market for loanable funds. 2. As interest rate decreases, what happens too the quantity of loanable funds demanded? a. quantity demanded will increase b. some borrowers will demand more funds whereas others will demand less c. there will be no change in quantity demanded d. quantity demanded will decrease

a. quantity demanded will increase

The accompanying graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially in equilibrium and inflation expectations are 2%. a. Adjust the graph to demonstrate the effects of inflation expectations increasing from 2% to 4%.

Shift the demand curve to the right. Shift the supply curve to the left.

Please use the graph to answer the given questions. Assume the ppl act rationally. Given the market conditions, what will be the prevailing interest rate? a. 6% b. 10% c. 2% d. 18% e. 14%

b. 10%

Please use the graph to answer the given questions. Assume the ppl act rationally. Which of the statements best describes a situation represented by point A?

b. Wayne projects that if he takes out a loan to open another gym franchise, he will earn a lower return than the interest rate he would have to pay, so he decides against it.

As a result, private investment should have: a. increased as the cost of borrowing increased b. increased b/c the cost of borrowing decreased c. decreased as the cost of borrowing decreased d. decreased as the cost of borrowing increased

b. increased b/c the cost of borrowing decreased

Select the proper term for each definition. a. a promise to pay issued by a borrower with annual interest payments and a principal payment at maturity.

bond