week 3 (part A & B)
Businesses became more pessimistic during the Great Recession. As a result: A. interest rates rose B.investment demand fell C. investment demand increased D. the US government ran more budget surpluses
B
Suppose the government engages in deficit spending, meaning it spends more than it takes in through taxes. All else equal, this would cause: A. a decrease in equilibrium savings/investment and a decrease in the equilibrium interest rate B. an increase in equilibrium savings/investment and an increase in the equilibrium interest rate C. an increase in equilibrium savings/investment and a decrease in the equilibrium interest rate D. a decrease in equilibrium savings/investment and an increase in the equilibrium interest rate
B
Suppose you deposit your money into a bank account that earns 7% interest, and that inflation is 3%. The real interest rate you receive is A. -4% B. 4% C. 10% D. 21%
B
When making decisions about saving and borrowing, people should care most about A. inflation B. the real interest rate C. the nominal interest rate D. the rate of saving minus the rate of borrowing
B
When people withdraw funds from their savings, economists call this: A. irrational B. dissaving C. disspending D. consumption smoothing
B
A higher interest rate ____ the return on a given amount of savings and therefore makes people _____ likely to save. A. increases; less B. decreases; less C. increases; more D. decreases; more
C
An interest rate best represents a ______ to borrowers and a ______ to savers. A. real return; nominal return B. nominal return; real return C. cost; reward D. reward; cost
C
In the supply and demand model, the demand curve shifts when: A. supply changes B. price changes C. anything besides price that affects demand changes D. never - it doesn't shift
C
Suppose the demand and supply of loanable funds decrease simultaneously. this would cause: A. the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease B. the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase C. the equilibrium quantity of loanable funds to decrease, but the effect on the equilibrium interest rate would be uncertain D. the equilibrium interest rate would decrease, but the new equilibrium quantity would be uncertain
C
The Fisher equation says that A. nominal interest rate = real interest rate - inflation B. nominal interest rate = inflation - real interest rate C. real interest rate = nominal interest rate - inflation D. real interest rate = inflation - nominal interest rate
C
Those with the least amount of patience: A. will save the most B. will demand a higher nominal interest rate but not a higher real rate C. have the least time preference D. have the greatest time preference
C
To the demanders of loanable funds, loanable funds are A. nominal B. undesirable C. investment D. savings
C
Typically, savers in the loanable funds market are ____ and borrowers are _____ A. the US government and households; foreign entities and firms B. the US government and foreign entities; households and firms C. households and foreign entities; firms and the US government D. firms and the US government; households and foreign entities
C
When the market of loanable funds is in equilibrium, the demand for loanable funds ____ the supply of loanable funds A. is greater than B. is less than C. is equal to D. is unrelated to
C
A lower interest rate makes it _____ likely that a firm can repay a given loan and therefore ____ likely to borrow A. more; more B. less; more C. more; less D. less; less
A
Based on the relationship between consumption and income, someone in their "prime earning years" A. is most likely a saver B. is most likely a borrower C. is most concerned about nominal rather than real interest rates D. is most likely just out of college
A
How will an increase in national income affect the supply of loanable funds? A. it will increase B. it will decrease C. it will not change D. None of the above
A
If firms expect lower sales and profits in the near future, this would cause: A. the demand for loanable funds to decrease B. the demand for loanable funds to increase C. the supply of loanable funds to decrease D. the supply of loanable funds to increase
A
Suppose the government engages in deficit spending, meaning it spends more than it takes in through taxes. All else equal, this would cause A. the demand for loanable funds to increase B. the demand for loanable funds to decrease C. the supply of loanable funds to increase D. the supply of loanable funds to decrease
A
Suppose the government engages in deficit spending, meaning it spends more than it takes in through taxes. At the same time, pessimism by businesses causes the demand for loanable funds to decrease by more than the increase in demand caused by deficit spending. All else equal, this would cause: A. a decrease in equilibrium savings/investment and a decrease in the equilibrium interest rate B. an increase in equilibrium savings/investment and an increase in the equilibrium interest rate C. an increase in equilibrium savings/investment and a decrease in the equilibrium interest rate D. a decrease in equilibrium savings/investment and an increase in the equilibrium interest rate
A
The supply curve for loanable funds is: A. upward-sloping B downward-sloping C. horizontal (flat) D. nonexistent
A
Which of the following would cause the equilibrium interest rate to increase? A. a rightward shift of the loanable funds demand curve B. a leftward shift of the loanable funds demand curve C. a rightward shift of the loanable funds supply curve D. none of these would increase the equilibrium interest rate
A
Which combination of events would cause the equilibrium interest rate to rise (with a certainty) and the equilibrium quantity of loanable funds to fall (with certainty)? A. the proportion of retirees increase, and investor confidence falls B. People have lower time preferences, and governments run large deficits C. the proportion of retirees increases, and people have higher time preferences D. people have lower time preferences, and capital is more productive
C
To the suppliers of loanable funds, loanable funds are _____ A. nominal B. undesirable C. investment D. savings
D
When the market for loanable funds is in equilibrium, _____ is equal to ______. A. the interest rate; savings B. excess supply; excess demand C. investment; the interest rate D. savings; investment
D
a higher interest rate _____ investment and consumption spending and therefore _____ GDP A. increases; increases B. decreases; increases C. increases; decreases D. decreases; decreases
D
