Macroeconomics Unit 5

Which of the following statements is correct? A. The interest rate that is usually reported is the interest rate that has been corrected for inflation. B. The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate. C. If the nominal interest rate has decreased and the real interest rate has also decreased, then the inflation rate must have decreased as well. D. All of the above are correct.

B. The supply of, and demand for, loanable funds depend on the real (rather than nominal) interest rate.

If there is shortage of loanable funds, then A. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium. B. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium. C. the supply for loanable funds shifts left and the demand shifts right. D. the supply for loanable funds shifts right and the demand shifts left.

B. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.

In 2009, the U.S. government's budget deficit increased substantially. Other things the same, this means the A. supply of loanable funds shifted to the right. B. supply of loanable funds shifted to the left. C. demand for loanable funds shifted to the right. D. demand for loanable funds shifted to the left.

B. supply of loanable funds shifted to the left.

In national income accounting, we use which of the following pairs of terms interchangeably? A. "public saving" and "government tax revenue minus government spending"B. "investment" and "private saving" C. "saving" and "national saving" D. "investment" and "purchases of stocks and bonds"

A. "public saving" and "government tax revenue minus government spending"

If the nominal interest rate is 7 percent and the rate of inflation is 3 percent, then the real interest rate is A. 4 percent. B. 3 percent. C. 7 percent. D. 10 percent.

A. 4 percent.

What would happen in the market for loanable funds if the government were to increase the tax on interest income? A. Real interest rates would rise. B. Real interest rates would be unaffected. C. Real interest rates would fall. D. The effect on the real interest rate is uncertain.

A. Real interest rates would rise.

On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. ​ Which of the following events could explain a shift of the demand-for-loanable-funds curve from D 1 to D 2 A. The tax code is reformed to encourage greater investment. B. The government starts running a budget deficit. C. The government starts running a budget surplus. D. The tax code is reformed to encourage greater saving.

A. The tax code is reformed to encourage greater investment.

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income? A. There would be an increase in the amount of loanable funds borrowed. B. There would be a reduction in the amount of loanable funds borrowed. C. There would be no change in the amount of loanable funds borrowed. D. The change in loanable funds is uncertain.

A. There would be an increase in the amount of loanable funds borrowed.

If Congress instituted an investment tax credit, the equilibrium quantity of loanable funds would A. rise. B. fall. C. be unchanged. D. move in an uncertain direction.

A. rise.

In a closed economy, private saving is A. the amount of income that households have left after paying for their taxes and consumption. B. always equal to investment. C. the amount of income that businesses have left after paying for the factors of production. D. the amount of tax revenue that the government has left after paying for its spending.

A. the amount of income that households have left after paying for their taxes and consumption.

Suppose government expenditures on goods and services increase, transfers are unchanged, and taxes rise by less than the increase in expenditures. These changes in the government's budget cause A. the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall. B. the equilibrium interest rate to fall and the equilibrium quantity of loanable funds to rise. C. both the equilibrium interest rate and the equilibrium quantity of loanable funds to fall. D. both the equilibrium interest rate and the equilibrium quantity of loanable funds to rise.

A. the equilibrium interest rate to rise and the equilibrium quantity of loanable funds to fall.

A decrease in government spending and the enactment of an investment tax credit would definitely cause A. the quantity of loanable funds traded to increase. B. the interest rate to increase. C. the quantity of loanable funds traded to decrease. D. the interest rate to decrease.

A. the quantity of loanable funds traded to increase.

On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. ​ If the equilibrium quantity of loanable funds is $50 billion and if the equilibrium nominal interest rate is 8 percent, then A. the rate of inflation is approximately 2 percent. B. there is an excess demand for loanable funds at a real interest rate of 8 percent. C. the rate of inflation is approximately 14 percent. D. there is an excess supply of loanable funds at a real interest rate of 6 percent.

A. the rate of inflation is approximately 2 percent.

A policy that induces people to save more shifts :A. the supply of loanable funds and reduces interest rates. B. the demand for loanable funds and reduces interest rates. C. the supply of loanable funds and raises interest rates. D. the demand for loanable funds and raises interest rates.

A. the supply of loanable funds and reduces interest rates.

If the inflation rate is 2 percent and the real interest rate is 7 percent, then the nominal interest rate is A. 5 percent. B. 9 percent C. 3.5 percent. D. 7 percent.

B. 9 percent

Suppose Congress institutes an investment tax credit. What would happen in the market for loanable funds? A. The Real interest rate and investment would fall. B. The Real interest rate and investment would rise. C. The Real interest rate would rise and investment would fall. D. None of the above is necessarily correct.

B. The Real interest rate and investment would rise.

Which of the following statements is correct? A. As a group, economists see no purpose in distinguishing between the nominal interest rate and the real interest rate. B. The interest rate that is usually reported is the nominal interest rate. C. If the nominal interest rate increases and the inflation rate remains unchanged, then the real interest rate decreases. D. All of the above are correct.

B. The interest rate that is usually reported is the nominal interest rate.

Suppose the government deficit increases, but the real interest rate remains the same. Which of the following things might have happened simultaneously to keep real interest rates the same? A. The government reduces the amount that people may put into savings accounts on which the interest is tax exempt. B. Because they are optimistic about the future of the economy, firms desire to borrow more to purchase physical capital. C. Consumers decide to decrease consumption and work more in order to save more. D. All of the above could explain why the interest rate would be unchanged.

C. Consumers decide to decrease consumption and work more in order to save more.

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? A. There would be no change in the interest rate or saving. B. The Real interest rate would decrease and saving would increase. C. The Real interest rate would increase and saving would decrease. D. None of the above is correct.

C. The Real interest rate would increase and saving would decrease.

Suppose that Congress were to repeal an investment tax credit. What would happen in the market for loanable funds? A. The demand and supply of loanable funds would shift right. B. The demand and supply of loanable funds would shift left. C. The demand for loanable funds would shift left. D. The supply of loanable funds would shift right.

C. The demand for loanable funds would shift left.

Suppose that Congress were to institute an investment tax credit. What would happen in the market for loanable funds? A. The demand for loanable funds would shift left. B. The supply of loanable funds would shift left. C. The demand for loanable funds would shift right. D. The supply of loanable funds would shift right.

C. The demand for loanable funds would shift right.

Consider the expressions T - G and Y - T - C. Which of the following statements is correct? A. The first of these is private saving; the second one is public saving. B. Each one of these is equal to national saving. C. The first of these is public saving; the second one is private saving. D. Each one of these is equal to public saving.

C. The first of these is public saving; the second one is private saving.

A budget deficit A. changes both the supply of and demand for loanable funds. B. changes the demand for loanable funds. C. changes the supply of loanable funds. D. does not influence the supply of or the demand for loanable funds.

C. changes the supply of loanable funds.

If Canada goes from a large budget deficit to a small budget deficit, it will A. increase private saving and so shift the supply of loanable funds right. B. increase investment and so shift the demand for loanable funds right. C. increase public saving and so shift the supply of loanable funds right. D. reduce national saving and shift the supply left.

C. increase public saving and so shift the supply of loanable funds right.

Crowding out occurs when A. investment increases because a budget surplus makes interest rates rise. B. investment increases because a budget surplus makes interest rates fall. C. investment declines because a budget deficit makes interest rates rise. D. investment declines because a budget deficit makes interest rates fall.

C. investment declines because a budget deficit makes interest rates rise.

Kathleen is considering expanding her dress shop. If interest rates rise she is A. more likely to expand. This illustrates why the demand for loanable funds slopes upward. B. less likely to expand. This illustrates why the supply of loanable funds slopes downward. C. less likely to expand. This illustrates why the demand for loanable funds slopes downward. D. more likely to expand. This illustrates why the supply of loanable funds slopes upward.

C. less likely to expand. This illustrates why the demand for loanable funds slopes downward.

If a reform of the tax laws encourages greater saving, the result would be A. higher Real interest rates and greater quantity of investment. B. higher Real interest rates and less quantity of investment. C. lower Real interest rates and greater quantity of investment. D. lower Real interest rate and less quantity of investment.

C. lower Real interest rates and greater quantity of investment.

A larger budget deficit A. raises the Real interest rate and the quantity of investment. B. Reduces the Real interest rate and the quantity of investment. C. raises the Real interest rate and reduces the quantity of investment. D. reduces the Real interest rate and raises the quantity of investment.

C. raises the Real interest rate and reduces the quantity of investment.

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts? A. the interest rate would increase and the quantity of loanable funds would decrease. B. the interest rate and quantity of loanable funds would decrease. C. the interest rate would decrease and the quantity of loanable funds would increase. D. the interest rate and quantity of loanable funds would increase

C. the interest rate would decrease and the quantity of loanable funds would increase.

If the government institutes policies that diminish incentives to save, then in the loanable funds market A. the demand for loanable funds shifts leftward. B. the supply of loanable funds shifts rightward. C. the supply of loanable funds shifts leftward. D. the demand for loanable funds shifts rightward.

C. the supply of loanable funds shifts leftward.

Bolivia had a smaller budget deficit in 2003 than in 2002. Other things the same, we would expect this reduction in the budget deficit to have A. increased both interest rates and investment. B. decreased both interest rates and investment. C. increased interest rates and decreased investment. D. decreased interest rates and increased investment.

D. decreased interest rates and increased investment.

A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because A. markets for government debt are fundamentally different from markets for private debt. B. of our assumption that the economy is closed. C. in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving. D. in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.

D. in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.

A larger budget surplus A. raises the Real interest rate and the quantity of investment. B. reduces the Real interest rate and the quantity of investment. C. raises the Real interest rate and reduces the quantity of investment. D. reduces the Real interest rate and raises the quantity of investment.

D. reduces the Real interest rate and raises the quantity of investment.

In which case would people desire to borrow the most? A. the nominal interest rate is 6% and the inflation rate is 3% B. the nominal interest rate is 5% and the inflation rate is 1% C. the nominal interest rate is 7% and the inflation rate is 5% D. the nominal interest rate is 8% and the inflation rate is 7%

D. the nominal interest rate is 8% and the inflation rate is 7%

The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. What is measured along the horizontal axis of the graph? A. the nominal interest rate B. the size of the government budget deficit or surplus C. the real interest rate D. the quantity of loanable funds

D. the quantity of loanable funds

Suppose the market for loanable funds is in equilibrium. What would happen in the market for loanable funds, other things the same, if the Congress and President increased the maximum contribution limits to 401(k) and 403(b) tax-deferred retirement accounts? A. the real interest rate and quantity of loanable funds would increase B. the real interest rate and quantity of loanable funds would decrease. C. the real interest rate would increase and the quantity of loanable funds would decrease. D. the real interest rate would decrease and the quantity of loanable funds would increase.

D. the real interest rate would decrease and the quantity of loanable funds would increase.

If the government institutes policies that diminish incentives to save, then in the loanable funds market A. the demand for loanable funds shifts rightward. B. the demand for loanable funds shifts leftward. C. the supply of loanable funds shifts rightward. D. the supply of loanable funds shifts leftward.

D. the supply of loanable funds shifts leftward.

If the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied, A. there is a surplus so interest rates will fall. B. there is a surplus so interest rates will rise. C. there is a shortage so interest rates will fall. D. there is a shortage so interest rates will rise.

D. there is a shortage so interest rates will rise.

Suppose the government were to replace the income tax with a consumption tax so that interest on savings was not taxed. The result would be that the interest rate A. and the quantity of investment both would increase. B. and the quantity of investment both would decrease. C. would increase and the quantity of investment would decrease. D. would decrease and the quantity of investment would increase.

D. would decrease and the quantity of investment would increase.

Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then A. the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original Real interest rate. B. the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original Real interest rate. C. the supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original Real interest rate. D. the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original Real interest rate.

B. the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original Real interest rate.