Macro 3 Exam

At the beginning of the year, your wealth is $10,000. During the year, you have an income of $80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is

$0

If the nominal interest rate is 8 percent and the inflation rate is 2 percent, the real interest rate is approximately

6 percent

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate

A lower real interest rate makes more investment projects profitable

Which of the following explains why the demand for loanable funds is negatively related to the real interest rate?

A lower real interest rate makes more investment projects profitable

Which of the following are major influences on the expected profit from an investment? I. technology advances II. stock market behavior III. accounting practices

I only

Which of the following are included in the supply of loanable funds? I. private saving II. government budget surplus III. international borrowing

I, II and III

The greater a household's ________ the less is its saving

The greater a household's ________ the less is its saving

In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if disposable income decreases

The supply of loanable funds curve would shift leftward to a curve such as SLF1

In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if the real interest rate rises

There would be a movement to a point such as b on supply of loanable funds curve SLF0

Suppose Molly has an income of $35,000 annually and has inherited a savings account of $20,000. Wyatt has a job that pays $35,000 annually, but has debts totaling $6,000. Which of the following is TRUE

We can expect Wyatt to save more than Molly this year

Suppose Molly has an income of $35,000 annually and has inherited a savings account of $20,000. Wyatt has a job that pays $35,000 annually, but has debts totaling $6,000. Which of the following is TRUE?

We can expect Wyatt to save more than Molly this year

The expected profit from an investment will change with

a change in technology

In the above figure, the initial supply of loanable funds curve is SLF0 and the demand for loanable funds investment curve is DLF0. An increase in the real interest rate to 7 percent could be caused by

an increase in investment demand

If the real interest rate is below the equilibrium real interest rate

borrowers will be unable to borrow all of the funds they want to borrow and the real interest rate will rise

All of the following are sources of loanable funds EXCEPT

business investment

Suppose Country A had net taxes of $30 million and government expenditures of $35 million. In addition, household saving in Country A totaled $5 million while consumption was $80 million. The government of Country A is running a budget ________ and national saving is ________ million

deficit; $0

The increase in the capital stock equals the amount of

depreciation

If the economy's capital stock decreases over time

depreciation exceeds gross investment

Suppose a bond promises to pay its holder $100 a year forever. The interest rate on the bond rises from 4 percent to 5 percent. The price of the bond

falls from $2,500 to $2,000

Suppose that a bond promises to pay its holder $100 a year forever. If the price of the bond increases from $1,000 to $1,250, then the interest rate on the bond

falls from 10 percent to 8 percent

If foreigners spend more on U.S.-made goods and services than we spend on theirs

foreigners must borrow from the United States or sell U.S. assets to make up the difference

Net investment equals

gross investment minus depreciation

The ________ the expected profit, the greater is the _______

higher; investment demand

If households expect an increase in their future incomes, they will save

less and consume more today

In the above figure, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. An increase in the expected profit would

only shift the demand for loanable funds curve rightward to a curve such as DLF1

Approximately, the real interest rate ________ the inflation rate ________ the nominal interest rate

plus; equals

In the above figure, a decrease in the expected profit will result in a movement from point E to

point H

U.S. investment is financed from

private saving, government budget surpluses, and borrowing from the rest of the world

As the ________ interest rate increases, the quantity of loanable funds demanded _______

real; decreases

In the loanable funds market, the supply comes from

saving, the government budget surplus and international borrowing

In the above figure, new expectations of booming business conditions and a higher expected profit will

shift the demand for loanable funds curve rightward

In the above figure, technological progress that increases the expected profit will

shift the demand for loanable funds curve rightward

In the above figure, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. An economic expansion that raises disposable income and the expected profit would

shift the supply of loanable funds curve rightward to a curve such as SLF1, and shift the demand for loanable funds curve rightward to a curve such as DLF1

Greater optimism about the expected profits from investment projects

shifts the demand for loanable funds curve rightward

The key financial institutions in the United States include all of the following EXCEPT

the U.S. Treasury

Other things remaining the same, the greater the expected profit

the greater the amount of investment

Households will choose to save more if

A) income is expected to decrease in the future. B) current disposable income increases

Households will choose to save more if

A) income is expected to decrease in the future. B) current disposable income increases.