LC9

Refer to the graph. Which statement is TRUE?

A shortage of loanable funds exists when the interest rate is 3 percent.

Which statement is TRUE?

An insolvent firm has liabilities that exceed its assets.

Which statement is TRUE?

The deposits of commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.

During the Great Depression, the number of bank failures was:

a major issue, with approximately 50 percent of banks failing.

Financial intermediation may fail if something causes:

a reduction in the supply of savings.

All else equal, if consumers decide to save more, the:

supply of funds in the loanable funds market will increase.

The panic in the shadow banking system that led to the financial crisis of 2007-2008 was exacerbated by all of these conditions except:

the overregulation of the shadow banking system.

Refer to the graph. Which statement is TRUE?

If the supply for loanable funds increases by $200 billion dollars at every interest rate, then the equilibrium interest rate will fall to 4 percent.

AIDS has dramatically reduced life expectancies in Africa. What impact would this have on saving rates?

It would reduce the rate of saving, because many Africans expect to die young.

Which event would cause the supply curve to shift rightward and the equilibrium interest rate in the market for loanable funds to decrease?

an increase in the amount of the population working full time

Increased government borrowing, shifts the _____ curve in the market for loanable funds to the right, causing the equilibrium interest rate to _____.

demand; rise

Which condition could break the bridge between savers and borrowers?

insecure property rights

Which factor is one of the four major factors that economists believe determine the supply of savings?

interest rates

The market where savers of funds trade with borrowers of funds is called the:

market for loanable funds.

All else equal, an owner's equity in an asset will increase if the:

owner pays down the debt associated with the asset.

Which condition could break the bridge between savers and borrowers?

politicized lending

Which condition would NOT lead financial intermediation to fail?

privately owned banks

Financial institutions such as banks, bond markets, and stock markets:

reduce the costs of moving savings from savers to borrowers.

An increase in government borrowing:

reduces private consumption.

If the interest rate offered on savings accounts decreases from 5 percent to 2 percent, then the price of an equally risky one-year maturity zero-coupon bond with a face value of $1,000 will:

rise from $952 to $980.

An inverse relationship occurring in bond markets means that when the price of a zero-coupon bond with a face value of $1,000 falls from $952 to $935, interest rates on other assets with equal risk:

rise from 5 percent to 7 percent.

People whose incomes fluctuate (like salespeople, writers, and homebuilders) smooth consumption by:

saving

If for a certain individual money spent on goods + money spent on services < income, then this individual also has:

savings.

Individuals want to _____ over time.

smooth consumption

It has been said that consumers often want immediate satisfaction and therefore must be compensated for saving their money. Which preference best captures this phenomenon?

time preference

Which condition could break the bridge between savers and borrowers?

bank failures and panics

If the government offers an investment tax credit during a recession in order to stimulate investment demand, it will probably make the tax credit:

temporary, to encourage firms to invest quickly.

On the supply curve for savings, the vertical axis represents the interest rate as a percent rather than the price expressed in dollars, as on other supply curves. This is because:

prices are expressed as dollars per unit, but in the market for savings the unit is dollars, so it's dollars per dollar, which is most easily expressed as a percentage.

If a company's profits are relatively high,

If a company's profits are relatively high,

All else equal, if consumer preferences changed so that they generally decided to save less, what would occur?

Supply in the market for loanable funds would decrease, and the interest rate would rise.

A sophisticated IOU that documents who owes how much interest and principal payments must be made is a(n):

bond

Something of value that by agreement becomes the property of the lender if the borrower defaults is:

collateral

Which condition could break the bridge between savers and borrowers?

controls on interest rates