saver. Long term bonds have less risk than short term bonds.
saver. Long term bonds have more risk than short term bonds.
borrower. Long term bonds have less risk than short term bonds.
borrower. Long term bonds have more risk than short term bonds.
2) Other things the same, when the interest rate rises,
people would want to lend more, making the supply of loanable funds increase.
people would want to lend less, making the supply of loanable funds decrease.
people would want to lend more, making the quantity of loanable funds supplied increase.
people would want to lend less, making the quantity of loanable funds supplied decrease.
3) If there is a surplus of loanable funds, then
the quantity demanded is greater than the quantity supplied and the interest rate will rise.
the quantity demanded is greater than the quantity supplied and the interest rate will fall.
the quantity supplied is greater than the quantity demanded and the interest rate will rise.
the quantity supplied is greater than the quantity demanded and the interest rate will fall.
4) If a reform of the tax laws encourages greater saving, the result would be
higher interest rates and greater investment.
higher interest rates and less investment.
lower interest rates and greater investment.
lower interest rate and less investment.
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?
There would be no change in the interest rate or saving.
The interest rate would decrease and saving would increase.
The interest rate would increase and saving would decrease.
None of the above is correct.
6) Suppose the U.S. offered a tax credit for firms that built new factories in the U.S. Then
the demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
the demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
the supply of loanable funds would shift rightward, initially creating a surplus of a. loanable funds at the original interest rate.
the supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate.
7) A government budget deficit affects the supply of loanable funds, rather than the demand for loanable funds, because
in our model of the loanable funds market, we define "loanable funds" as the flow of resources available to fund private investment.
in our model of the loanable funds market, we define "loanable funds" as the flow of resources available from private saving.
markets for government debt are fundamentally different from markets for private debt.
of our assumption that the economy is closed.
8) A certificate of indebtedness that specifies the obligations of the borrower to the holder is called a
bond.
stock.
mutual fund.
All of the above are correct.
9) ABC Co. sells newly issued bonds. JLG Co. sells newly issued stocks. Which company is raising funds in financial markets?
only ABC
only JLG
both ABC and JLG
neither ABC nor JLG
10) Other things the same, as the maturity of a bond becomes longer, the bond will pay
a lower interest rate because it has less risk.
a lower interest rate because it has more risk.
a higher interest rate because it has more risk.
the same interest rate, because there is no relationship between term and risk.
11) Other things the same, which bond would you expect to pay the lowest interest rate?
a bond issued by a state with a very good credit rating
a bond issued by the U.S. government
a bond issued by a fairly new company doing genetic research
a bond issued by Nabisco
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
private saving = $10,000 and GDP = $55,000.
private saving = $10,000 and GDP = $63,000.
private saving = $12,000 and GDP = $67,000.
private saving = $12,000 and GDP = $69,000.
13) In a small closed economy investment is $50 billion and private saving is $45 billion. What are public saving and national saving?
$5 billion and $45 billion
-$5 billion and $45 billion
$5 billion and $50 billion
-$5 billion and $50 billion
14) In a closed economy, if Y is 10,000, T is 1,000, G is 3,000, and C is 5,000, then
the government has a budget surplus and investment is 1,000
the government has a budget surplus and investment is 2,000
the government has a budget deficit and investment is 1,000
the government has a budget deficit and investment is 2,000
15) What is measured along the vertical axis of the graph?
the nominal interest rate
the real interest rate
the quantity of investment
the quantity of saving
16) What is measured along the horizontal axis of the graph?
the quantity of loanable funds
the size of the government budget deficit or surplus
the real interest rate
the nominal interest rate
17) Which of the following movements shows the effects of the government going from a budget surplus to a budget deficit?
a movement from Point A to Point B
a movement from Point B to Point A
a movement from Point A to Point F
a movement from Point B to Point C
18) The position and/or slope of the Supply curve are influenced by
the level of public saving.
the level of national saving.
decisions made by people who have extra income they want to save and lend out.
All of the above are correct.
19) If there is a shortage of loanable funds, then
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.
20) Interest rates fall and investment falls. Which of the following could explain these changes?
The government goes from a surplus to a deficit.
The government repeals an investment tax credit.
The government replaces a consumption tax with an income tax.
None of the above is correct.
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
supply of loanable funds to the right, causing interest rates to fall.
supply of loanable funds to the left, causing interest rates to rise.
demand for loanable funds to the right, causing interest rates to rise.
demand for loanable funds to the left, causing interest rates to fall.
22) The slope of the demand for loanable funds curve represents the
positive relation between the real interest rate and investment.
negative relation between the real interest rate and investment.
positive relation between the real interest rate and saving.
negative relation between the real interest rate and saving.
23) Which of the following could explain an increase in the equilibrium interest rate and a decrease in the equilibrium quantity of loanable funds?
The demand for loanable funds shifted right.
The demand for loanable funds shifted left.
The supply of loanable funds shifted right.
The supply of loanable funds shifted left.
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