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Economics Final — Chapter 8

Number of questions: 23

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1) A bond buyer is a
  1. saver. Long term bonds have less risk than short term bonds.
  2. saver. Long term bonds have more risk than short term bonds.
  3. borrower. Long term bonds have less risk than short term bonds.
  4. borrower. Long term bonds have more risk than short term bonds.
Answers are locked. Please click here to buy them. 2) Other things the same, when the interest rate rises,
  1. people would want to lend more, making the supply of loanable funds increase.
  2. people would want to lend less, making the supply of loanable funds decrease.
  3. people would want to lend more, making the quantity of loanable funds supplied increase.
  4. people would want to lend less, making the quantity of loanable funds supplied decrease.
Answers are locked. Please click here to buy them. 3) If there is a surplus of loanable funds, then
  1. the quantity demanded is greater than the quantity supplied and the interest rate will rise.
  2. the quantity demanded is greater than the quantity supplied and the interest rate will fall.
  3. the quantity supplied is greater than the quantity demanded and the interest rate will rise.
  4. the quantity supplied is greater than the quantity demanded and the interest rate will fall.
Answers are locked. Please click here to buy them. 4) If a reform of the tax laws encourages greater saving, the result would be
  1. higher interest rates and greater investment.
  2. higher interest rates and less investment.
  3. lower interest rates and greater investment.
  4. lower interest rate and less investment.
Answers are locked. Please click here to buy them. 5) 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?
  1. There would be no change in the interest rate or saving.
  2. The interest rate would decrease and saving would increase.
  3. The interest rate would increase and saving would decrease.
  4. None of the above is correct.
Answers are locked. Please click here to buy them. 6) Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then
  1. the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
  2. the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
  3. the supply of loanable funds would shift rightward, initially creating a surplus of a. loanable funds at the original interest rate.
  4. the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
Answers are locked. Please click here to buy them. 7) A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because
  1. in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.
  2. in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving.
  3. markets for government debt are fundamentally different from markets for private debt.
  4. of our assumption that the economy is closed.
Answers are locked. Please click here to buy them. 8) A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
  1. bond.
  2. stock.
  3. mutual fund.
  4. All of the above are correct.
Answers are locked. Please click here to buy them. 9) ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?
  1. only ABC
  2. only JLG
  3. both ABC and JLG
  4. neither ABC nor JLG
Answers are locked. Please click here to buy them. 10) Other things the same, as the maturity of a bond becomes longer, the bond will pay
  1. a lower interest rate because it has less risk.
  2. a lower interest rate because it has more risk.
  3. a higher interest rate because it has more risk.
  4. the same interest rate, because there is no relationship between term and risk.
Answers are locked. Please click here to buy them. 11) Other things the same, which bond would you expect to pay the lowest interest rate?
  1. a bond issued by a state with a very good credit rating
  2. a bond issued by the U.S. government
  3. a bond issued by a fairly new company doing genetic research
  4. a bond issued by Nabisco
Answers are locked. Please click here to buy them. 12) For an imaginary closed economy, T = $5,000; S = $11,000; C = $48,000; and the government is running a budget surplus of $1,000. Then
  1. private saving = $10,000 and GDP = $55,000.
  2. private saving = $10,000 and GDP = $63,000.
  3. private saving = $12,000 and GDP = $67,000.
  4. private saving = $12,000 and GDP = $69,000.
Answers are locked. Please click here to buy them. 13) In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?
  1. $5 billion and $45 billion
  2. -$5 billion and $45 billion
  3. $5 billion and $50 billion
  4. -$5 billion and $50 billion
Answers are locked. Please click here to buy them. 14) In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
  1. the government has a budget surplus and investment is 1,000
  2. the government has a budget surplus and investment is 2,000
  3. the government has a budget deficit and investment is 1,000
  4. the government has a budget deficit and investment is 2,000
Answers are locked. Please click here to buy them. 15) What is measured along the vertical axis of the graph?
  1. the nominal interest rate
  2. the real interest rate
  3. the quantity of investment
  4. the quantity of saving
Answers are locked. Please click here to buy them. 16) What is measured along the horizontal axis of the graph?
  1. the quantity of loanable funds
  2. the size of the government budget deficit or surplus
  3. the real interest rate
  4. the nominal interest rate
Answers are locked. Please click here to buy them. 17) Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?
  1. a movement from Point A to Point B
  2. a movement from Point B to Point A
  3. a movement from Point A to Point F
  4. a movement from Point B to Point C
Answers are locked. Please click here to buy them. 18) The position and/or slope of the Supply curve are influenced by
  1. the level of public saving.
  2. the level of national saving.
  3. decisions made by people who have extra income they want to save and lend out.
  4. All of the above are correct.
Answers are locked. Please click here to buy them. 19) If there is a shortage of loanable funds, then
  1. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
  2. the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
  3. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
  4. the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.
Answers are locked. Please click here to buy them. 20) Interest rates fall and investment falls. Which of the following could explain these changes?
  1. The government goes from a surplus to a deficit.
  2. The government repeals an investment tax credit.
  3. The government replaces a consumption tax with an income tax.
  4. None of the above is correct.
Answers are locked. Please click here to buy them. 21) Suppose a government that taxed all interest income changed its tax law so that the first $5,000 of a taxpayer's interest income was tax free. This would shift the
  1. supply of loanable funds to the right, causing interest rates to fall.
  2. supply of loanable funds to the left, causing interest rates to rise.
  3. demand for loanable funds to the right, causing interest rates to rise.
  4. demand for loanable funds to the left, causing interest rates to fall.
Answers are locked. Please click here to buy them. 22) The slope of the demand for loanable funds curve represents the
  1. positive relation between the real interest rate and investment.
  2. negative relation between the real interest rate and investment.
  3. positive relation between the real interest rate and saving.
  4. negative relation between the real interest rate and saving.
Answers are locked. Please click here to buy them. 23) Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?
  1. The demand for loanable funds shifted right.
  2. The demand for loanable funds shifted left.
  3. The supply of loanable funds shifted right.
  4. The supply of loanable funds shifted left.
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