Midterm #2: Chapter 8

which of the following equations will always represent GDP in an open economy?

Y=C+I+G+NX

a bond is a

a certificate of indebtedness

if the govs expenditures exceeds its receipts, it would likely

sell bonds directly to the public

an increase in the budget deficit would cause a

shortage of loanable funds at the original interest rate, which would lead to rising interest rates

the economy's two most important financial markets are

the bond market and the stock market

suppose that congress were too institute an investment tax credit. What would happen in the market for loanable funds?

the demand for loanable funds would shift right

if the nominal interest rate is 5 percent and the rate of inflation is 2 percent, then the real interest rate is

3%

if the inflation rate is 2% and the real interest rate is 3%, then the nominal interest rate is

5%

if the nominal interest rate is 7% and the real interest rate is 2%, then what is the inflation rate?

5%

if the nominal interest rate is 10% and the inflation rate is 4%, then the real interest rate is

6%

If the demand for loanable funds shifts to the left, then the equilibrium interest rate

and quantity of loanable funds fall

long term bonds are: a. riskier than short term, so interest rates are usually lower than short term bonds b. riskier than short term, so interest rates are usually higher than short term bonds c. less risky than short term, so interest rates are usually lower than short term bonds d. less risky than short term, so interest rates are usually higher than short term bonds

b. riskier than short term, so interest rates are usually higher than short term bonds

which of the following could explain a decrease in the equilibrium interest rate and in the equilibrium quantity of loanable funds? a. the demand for loanable funds shifted rightward b. the demand for loanable funds shifted leftward c. the supply of loanable funds shifted rightward d. the supply of loanable funds shifted leftward

b. the demand for loanable funds shifted leftward

which of the following would necessarily increase the equilibrium interest rate? a. the demand for and the supply of loanable funds shift right b. the demand for and the supply of loanable funds shift left c. the demand for loanable funds shifts right and the supply of loanable funds shifts left d. the demand for loanable funds shifts left and the supply of loanable funds shifts right

c. the demand for loanable funds shifts right and the supply of loanable funds shifts left

which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds? a. the demand for loanable funds shifted rightward b. the demand for loanable funds shifted leftward c. the supply of loanable funds shifted rightward d. the supply of loanable funds shifted leftward

c. the supply of loanable funds shifted rightward

the prices of stock traded on exchanges are determined by

c. the supply of, and demand for, the stock

When opening a print shop you need to buy printers, computers, furniture, and similar items. Economists call these expenditures

capital investment

net exports must equal zero for any economy: a. that is closed b. for which Y = C+I+G c. for which S=Y-C-G d. all of the above are correct

d. all of the above are correct

stock represents: a. a claim to a share of the profits of a firm b. ownership in a firm c. equity finance d. all of the above are correct

d. all of the above are correct

which of the following is correct? a. lenders sell bonds and borrowers buy them b. long term bonds usually pay a lower interest rate than do short term bonds because long term bonds are riskier c. the term junk bonds refers to bonds that have been resold many times d. none of the above is true

d. none of the above is true

which of the following could explain an increase in the equilibrium interests rate and a decrease in the equilibrium quantity of loanable funds? a. the demand for loanable funds shifted right b. the demand for loanable funds shifted left c. the supply of loanable funds shifted right d. the supply of loanable funds shifted left

d. the supply of loanable funds shifted left

short term bonds are generally

less risky than long-term bonds and so they feature lower interest rates.

municipal bonds pay a relatively

low rate of interest because of their low default risk and because the interest they pay is not subject to federal income tax.

an increase in the budget deficit

makes investment spending fall

the slope of the demand for loanable funds curve represents the

negative relation between the real investment rate and investment

if Japan goes from a small budget deficit to a large budget deficit, it will reduce

public saving and so shift the supply of loanable funds left

If the supply for loanable funds shifts to the left, then the equilibrium interest rate

rises and the quantity of loanable funds falls

if the gov institutes policies that diminish incentives to save, then in the loanable funds market

the supply of loanable funds shifts leftward

the supply of loanable funds slopes

upward because an increase in the interest rate induces people to save more