Question 1

A government reduces its budget deficit,but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default.Which of the following is correct?

Accepted Answer

A)  The reduced budget deficit will raise interest rates in general.The increased risk of default will raise interest rates on government bonds.
B)  The reduced budget deficit will raise interest rates in general.The increased risk of default will reduce interest rates on government bonds.
C)  The reduced budget deficit will reduce interest rates in general.The increased risk of default will raise interest rates on government bonds.
D)  The reduced budget deficit will reduce interest rates in general.The increased risk of default will reduce interest rates on government bonds.

Question 2

Other things the same,a government budget deficit

Accepted Answer

A)  reduces public saving,but not national saving.
B)  reduces national saving,but not public saving.
C)  reduces both public and national saving.
D)  reduces neither public saving nor national saving.

Question 3

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Accepted Answer

A)  Interest rates would rise.
B)  Interest rates would be unaffected.
C)  Interest rates would fall.
D)  The effect on the interest rate is uncertain.

Question 4

Interest rates fall and investment falls.Which of the following could explain these changes?

Accepted Answer

A)  The government goes from a surplus to a deficit.
B)  The government repeals an investment tax credit.
C)  The government replaces a consumption tax with an income tax.
D)  None of the above is correct.

Question 5

A policy that induces people to save more shifts

Accepted Answer

A)  the supply of loanable funds rightward and increases investment.
B)  the supply of loanable funds leftward and decreases investment.
C)  the supply of loanable funds rightward and decreases investment.
D)  the supply of loanable funds leftward and increases investment.

Question 6

An increase in the budget deficit would cause a

Accepted Answer

A)  shortage of loanable funds at the original interest rate,which would lead to falling interest rates.
B)  surplus of loanable funds at the original interest rate,which would lead to rising interest rates.
C)  shortage of loanable funds at the original interest rate,which would lead to rising interest rates.
D)  surplus of loanable funds at the original interest rate,which would lead to falling interest rates.

Question 7

Which of the following is  NOT\bold{NOT}NOT  correct?

Accepted Answer

A)  Many economist oppose increases in how much people save.
B)  Saving is an important long-run determinant of a nation's standard of living.
C)  A change in tax laws that encouraged greater saving would lower interest rates.
D)  Taxes on interest income can substantially decrease the future value of current saving.

Question 8

If Congress instituted an investment tax credit,the interest rate would

Accepted Answer

A)  rise and saving would rise.
B)  fall and saving would fall.
C)  rise and saving would fall.
D)  fall and saving would rise. A

Question 9

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Accepted Answer

A)  There would be an increase in the amount of loanable funds borrowed.
B)  There would be a reduction in the amount of loanable funds borrowed.
C)  There would be no change in the amount of loanable funds borrowed.
D)  The change in loanable funds is uncertain.

Question 10

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

Accepted Answer

A)  supply of loanable funds to the right,causing interest rates to fall.
B)  supply of loanable funds to the left,causing interest rates to rise.
C)  demand for loanable funds to the right,causing interest rates to rise.
D)  demand for loanable funds to the left,causing interest rates to fall.

Question 11

Suppose a country had a smaller increase in debt in 2011 than it had in 2010.Then other things the same,we would expect

Accepted Answer

A)  lower interest rates and investment in 2011 than in 2010.
B)  lower interest rates and greater investment in 2011 than in 2010.
C)  higher interest rates and greater investment in 2011 than in 2010.
D)  higher interest rates and lower investment in 2011 than in 2010. B

Question 12

What is a bond buyer promised when she buys a bond?

Accepted Answer

The answer of What is a bond buyer promised when...

Question 13

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Accepted Answer

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.

Question 14

For an imaginary economy,when the real interest rate is 5 percent,the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000.Currently,the nominal interest rate is 9 percent and the inflation rate is 2 percent.Currently,

Accepted Answer

A)  the market for loanable funds is in equilibrium.
B)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,and as a result the real interest rate will rise.
C)  the quantity of loanable funds supplied exceeds the quantity of loanable funds demanded,and as a result the real interest rate will fall.
D)  the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied,and as a result the real interest rate will rise.

Question 15

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Accepted Answer

A)  a larger investment tax credit
B)  an expansion of eligibility for Individual Retirement Accounts
C)  an increase in income-tax rates,with no change in the government budget deficit or surplus
D)  an increase in government purchases,with no change in taxes

Question 16

The financial system is important because it helps to match one person’s _____ with another person’s _____.

Accepted Answer

The answer of The financial system is important because it...

Question 17

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

Accepted Answer

A)  and quantity of loanable funds rises.
B)  and quantity of loanable funds falls.
C)  rises and the quantity of loanable funds falls.
D)  falls and the quantity of loanable funds rises.

Question 18

Other things the same,when the interest rate rises,

Accepted Answer

A)  people would want to lend more,making the supply of loanable funds increase.
B)  people would want to lend less,making the supply of loanable funds decrease.
C)  people would want to lend more,making the quantity of loanable funds supplied increase.
D)  people would want to lend less,making the quantity of loanable funds supplied decrease. C

Question 19

The slope of the demand for loanable funds curve represents the

Accepted Answer

A)  positive relation between the real interest rate and investment.
B)  negative relation between the real interest rate and investment.
C)  positive relation between the real interest rate and saving.
D)  negative relation between the real interest rate and saving.

Question 20

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Accepted Answer

A)  makes saving more attractive.
B)  makes saving less attractive.
C)  makes investment more attractive.
D)  makes investment less attractive.

Exam 13: Saving Investment and the Financial System: The Market for Loanable Funds

A government reduces its budget deficit,but at the same time people become concerned that the outlook for future government expenditures and revenues increase the chance it will default.Which of the following is correct?

Correct AnswerverifiedShow Answer

Other things the same,a government budget deficit

Correct AnswerverifiedShow Answer

What would happen in the market for loanable funds if the government were to increase the tax on interest income?

Correct AnswerverifiedShow Answer

Interest rates fall and investment falls.Which of the following could explain these changes?

Correct AnswerverifiedShow Answer

A policy that induces people to save more shifts

Correct AnswerverifiedShow Answer

An increase in the budget deficit would cause a

Correct AnswerverifiedShow Answer

Which of the following is NOT\bold{NOT}NOT correct?

Correct AnswerverifiedShow Answer

If Congress instituted an investment tax credit,the interest rate would

Correct AnswerverifiedA

What would happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Suppose a country had a smaller increase in debt in 2011 than it had in 2010.Then other things the same,we would expect

Correct AnswerverifiedB

What is a bond buyer promised when she buys a bond?

Correct AnswerverifiedShow Answer

Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds?

Correct AnswerverifiedShow Answer

For an imaginary economy,when the real interest rate is 5 percent,the quantity of loanable funds demanded is $1,000 and the quantity of loanable funds supplied is $1,000.Currently,the nominal interest rate is 9 percent and the inflation rate is 2 percent.Currently,

Correct AnswerverifiedShow Answer

Which of the following policy changes would lead to a decrease in the real interest rate and an increase in investment and saving?

Correct AnswerverifiedShow Answer

The financial system is important because it helps to match one person’s _____ with another person’s _____.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Other things the same,when the interest rate rises,

Correct AnswerverifiedC

The slope of the demand for loanable funds curve represents the

Correct AnswerverifiedShow Answer

The slope of the supply of loanable funds is based on the logic that an increase in interest rates

Correct AnswerverifiedShow Answer

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Which of the following is $\bold{NOT}$ correct?

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A

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B

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The financial system is important because it helps to match one person’s _ with another person’s _.

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C

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