Question 1

Savings is:

Accepted Answer

A)   the demand for loanable funds and is downward sloping.
B)   the supply of loanable funds and is horizontal.
C)   the supply of loanable funds and is vertical.
D)   the supply of loanable funds and is upward sloping.
E)   the demand for loanable funds and is upward sloping.F) B) and E)
G) B) and C)

Question 2

If you deposit money in the bank, in essence, you are:

Accepted Answer

A)   a supplier of funds, since the bank simply is an intermediary between those who want to borrow loanable funds and those who are willing to lend them (depositors) .
B)   a borrower, since all bank funds are borrowed from the federal government.
C)   a supplier of funds, since the bank loans money to the government for daily operations.
D)   neither a borrower nor supplier of funds in this case, since you have neither lent nor borrowed money.
E)   not a supplier of funds, since mutual funds are the source of lending to firms.F) A) and D)
G) B) and C)

Question 3

If the demographics of a nation change and the average age of the nation is approaching middle age, we would expect:

Accepted Answer

A)   savings to increase.
B)   savings to decrease.
C)   borrowing to decline.
D)   consumption variation to increase.
E)   savings as a percentage of income to fall.F) A) and E)
G) B) and D)

Question 4

If the federal government taxes the interest rate that savers receive:

Accepted Answer

A)   the rate of return to savers increases because of transfer payments and people save more.
B)   the demand for loanable funds increases.
C)   the supply of loanable funds increases.
D)   the supply of loanable funds decreases.
E)   corporations are more willing to borrow.F) C) and D)
G) D) and E)

Question 5

Assuming inflation is positive, the real interest rate:

Accepted Answer

A)   must always be larger than the nominal interest rate.
B)   must always be smaller than the nominal interest rate.
C)   could be larger or smaller than the nominal interest rate depending on the rate of inflation.
D)   would normally be larger than the nominal interest rate.
E)   increases exactly as fast as inflation.F) All of the above
G) B) and E)

Question 6

The notion of consumption smoothing means:

Accepted Answer

A)   people tend to spend about the same amount each month.
B)   people tend to spend about the same amount each year, and if more is spent this year than in the past, they would tend to spend less next year.
C)   consumption varies less than income over a person's lifetime. In early life people tend to borrow, in late life people tend to dissave, but in their middle years they tend to save.
D)   consumption patterns tend to correlate perfectly with income. People spend the exact amount of their income over their lifetime.
E)   consumption tends to vary more than income over a person's lifetime. Although people should smooth their consumption over the years, they don't. If consumption were smoothed, people would be better off.F) C) and D)
G) B) and D)

Question 7

You borrow $10,000 today at a nominal rate of 5%; inflation for the past 10 years has been exactly 2%. Today, inflation instantly rises to 4% and stays that way for the duration of your loan. Based on the above information and all else being equal, today:

Accepted Answer

A)   you are worse off because inflation has risen.
B)   you are better off strictly because 5% is still more than 4%.
C)   you are better off because you are paying back the loan with dollars that represent less purchasing power today than the dollars you borrowed before.
D)   the lender is better off because the real rate of interest automatically increases when inflation increases.
E)   both you and the lender are better off because real rates fall when inflation rises.F) B) and E)
G) A) and B)

Question 8

Lenders in the loanable funds market consist of:

Accepted Answer

A)   foreign governments, the domestic government, and households.
B)   households and foreign entities.
C)   mutual fund firms, stock exchanges, and banks.
D)   firms and governments.
E)   arbitrage companies, banks, and firms.F) A) and E)
G) A) and B)

Question 9

Assume that two people save $100 per month (the same for both)  and earn exactly the same positive annual interest rate of 2%. Also assume that one of them started saving at 20 years old, while the other started saving at 40 years old. Which statement is correct?

Accepted Answer

A)   On their 60th birthday, the one who started saving later would have exactly half as much as the one who began saving earlier.
B)   On their 60th birthday, they would both have the same amount.
C)   On their 60th birthday, the one who started saving later would have less than half the amount that the one who began saving earlier has.
D)   On their 60th birthday, the one who started saving later would have received a larger real interest rate, but not enough to "catch up" to the one who began saving earlier.
E)   On their 60th birthday, neither would have anything if inflation had been negative during the period.F) C) and E)
G) D) and E)

Question 10

Refer to the following graph to answer the next  questions: 
-Assuming the figure represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy?

Accepted Answer

A)   a shift from line 1 to line 4
B)   a shift from line 3 to line 2
C)   a shift from line 2 to line 3
D)   a shift from line 4 to line 1
E)   a new shortage of loanable funds represented by the distance from C to DF) A) and D)
G) A) and C)

Question 11

If foreign income and wealth decrease, this would most likely:

Accepted Answer

A)   not affect the market for loanable funds.
B)   cause the supply of loanable funds to increase.
C)   cause the supply of loanable funds to decrease.
D)   cause the demand for loanable funds to increase in order for foreigners to maintain consumption.
E)   cause the demand for loanable funds to decrease.F) A) and B)
G) None of the above

Question 12

What does it mean if we say that in the United States, firms are "net borrowers," and how is this reflected in the market for loanable funds?

Accepted Answer

This means that although some firms are ...

Question 13

Typically a college degree is "worth it," but it requires:

Accepted Answer

A)   high time preferences.
B)   low time preferences.
C)   smoothed consumption.
D)   variable correlated consumption.
E)   the supply of loanable funds to be large.F) A) and B)
G) A) and C)

Question 14

Melvin begins his retirement fund at age 30, depositing $1,000 per month until age 50. Cindy begins her retirement fund at age 20, depositing the same $1,000 per month amount until age 50. Both Melvin and Cindy earn 5% annual interest on their funds, and there are no tax considerations in this problem. Based on the provided information:

Accepted Answer

A)   and assuming they retire at age 50, Cindy will have exactly 50% more than Melvin.
B)   and assuming they retire at age 50, Cindy will have more than 50% more than Melvin.
C)   and assuming they retire at age 50, Cindy will have less than 50% more than Melvin.
D)   and assuming they both retire at age 60, Cindy will have less than Melvin.
E)   the difference between the two will get larger with higher inflation.F) C) and D)
G) B) and E)

Question 15

The gap between the real and nominal interest rate represents:

Accepted Answer

A)   the inflationary premium.
B)   the time preference
C)   the difference from what the lender receives and the borrower pays.
D)   consumption smoothing.
E)   a surplus of loanable funds.F) A) and C)
G) B) and D)

Question 16

Inflation reached its peak (of at least 14%)  in the late 1970s/early 1980s. If this statement is true, then:

Accepted Answer

A)   it is certain the real rate of interest was greater than the nominal rate.
B)   it is certain the nominal rate of interest was greater than the real rate.
C)   borrowers would borrow more because, automatically, real rates would fall.
D)   the real rate of interest must have been constant, even if the nominal rate varied because of consumption smoothing.
E)   if higher nominal rates were charged, it would be certain that higher real rates would be received.F) A) and E)
G) A) and D)

Question 17

T. D. Goneworth, a financial services firm, makes people want their money and want it now. If the firm is successful in advertising this message and convinces people to believe it, then, all else equal:

Accepted Answer

A)   T. D. Goneworth has caused people to increase their consumption smoothing.
B)   T. D. Goneworth has caused people to reduce their time preferences.
C)   T. D. Goneworth has equalized the real and nominal rates of interest.
D)   T. D. Goneworth has increased the rate of inflation.
E)   T. D. Goneworth has caused people to increase their time preferences.F) A) and E)
G) B) and D)

Question 18

You deposit $500.00 into an asset that pays 10% annual interest for three years. At the end of the three years, you would have:

Accepted Answer

A)   $650.00.
B)   $665.50.
C)   about $425.25.
D)   about $1,655.00.
E)   $732.05F) A) and E)
G) A) and B)

Question 19

If household wealth rises and capital becomes less productive, we would correctly say that:

Accepted Answer

A)   the new equilibrium quantity of loanable funds would decrease, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original.
B)   the new equilibrium quantity of loanable funds would increase, but we would be unable to tell if the new equilibrium interest rate would be higher or lower than the original.
C)   the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be higher than the original.
D)   the new equilibrium quantity of loanable funds would be indeterminate, but we would be certain the new equilibrium interest rate would be less than the original.
E)   based on this information and because both changes would affect the demand for loanable funds in the opposite way, we would be unable to say anything about the relationship of the new equilibrium interest rate and quantity to the original interest rate and quantity.F) A) and E)
G) All of the above

Question 20

Typically, savers in the loanable funds market are the _________, and borrowers are _________.

Accepted Answer

A)   government and households; foreign entities and firms
B)   government and foreign entities; households and firms
C)   foreign firms and households; foreign banks and domestic firms
D)   households and foreign entities; firms and the (U.S.)  government
E)   large firms and households; small firms and microcapital organizationsF) A) and B)
G) B) and C)

Exam 9: Savings, Interest Rates, and the Market for Loanable Funds

If you deposit money in the bank, in essence, you are:

Correct Answer
verified

What does it mean if we say that in the United States, firms are "net borrowers," and how is this reflected in the market for loanable funds?

Correct Answer
verified
This means that although some firms are ...
View Answer

Correct Answer
verified

T. D. Goneworth, a financial services firm, makes people want their money and want it now. If the firm is successful in advertising this message and convinces people to believe it, then, all else equal:

Correct Answer
verified

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy?

Correct Answer
verified

You borrow $10,000 today at a nominal rate of 5%; inflation for the past 10 years has been exactly 2%. Today, inflation instantly rises to 4% and stays that way for the duration of your loan. Based on the above information and all else being equal, today:

Correct Answer
verified

If foreign income and wealth decrease, this would most likely:

Correct Answer
verified

The gap between the real and nominal interest rate represents:

Correct Answer
verified

Typically a college degree is "worth it," but it requires:

Correct Answer
verified

You deposit $500.00 into an asset that pays 10% annual interest for three years. At the end of the three years, you would have:

Correct Answer
verified

Lenders in the loanable funds market consist of:

Correct Answer
verified

The notion of consumption smoothing means:

Correct Answer
verified

Typically, savers in the loanable funds market are the _, and borrowers are _.

Correct Answer
verified

Savings is:

Correct Answer
verified

Inflation reached its peak (of at least 14%) in the late 1970s/early 1980s. If this statement is true, then:

Correct Answer
verified

Assume that two people save $100 per month (the same for both) and earn exactly the same positive annual interest rate of 2%. Also assume that one of them started saving at 20 years old, while the other started saving at 40 years old. Which statement is correct?

Correct Answer
verified

If household wealth rises and capital becomes less productive, we would correctly say that:

Correct Answer
verified

If the federal government taxes the interest rate that savers receive:

Correct Answer
verified

If the demographics of a nation change and the average age of the nation is approaching middle age, we would expect:

Correct Answer
verified

Assuming inflation is positive, the real interest rate:

Correct Answer
verified

Exam 9: Savings, Interest Rates, and the Market for Loanable Funds

If you deposit money in the bank, in essence, you are:

Correct AnswerverifiedShow Answer

What does it mean if we say that in the United States, firms are "net borrowers," and how is this reflected in the market for loanable funds?

Correct AnswerverifiedThis means that although some firms are ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

T. D. Goneworth, a financial services firm, makes people want their money and want it now. If the firm is successful in advertising this message and convinces people to believe it, then, all else equal:

Correct AnswerverifiedShow Answer

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy?

Correct AnswerverifiedShow Answer

You borrow $10,000 today at a nominal rate of 5%; inflation for the past 10 years has been exactly 2%. Today, inflation instantly rises to 4% and stays that way for the duration of your loan. Based on the above information and all else being equal, today:

Correct AnswerverifiedShow Answer

If foreign income and wealth decrease, this would most likely:

Correct AnswerverifiedShow Answer

The gap between the real and nominal interest rate represents:

Correct AnswerverifiedShow Answer

Typically a college degree is "worth it," but it requires:

Correct AnswerverifiedShow Answer

You deposit $500.00 into an asset that pays 10% annual interest for three years. At the end of the three years, you would have:

Correct AnswerverifiedShow Answer

Lenders in the loanable funds market consist of:

Correct AnswerverifiedShow Answer

The notion of consumption smoothing means:

Correct AnswerverifiedShow Answer

Typically, savers in the loanable funds market are the _________, and borrowers are _________.

Correct AnswerverifiedShow Answer

Savings is:

Correct AnswerverifiedShow Answer

Inflation reached its peak (of at least 14%) in the late 1970s/early 1980s. If this statement is true, then:

Correct AnswerverifiedShow Answer

Assume that two people save $100 per month (the same for both) and earn exactly the same positive annual interest rate of 2%. Also assume that one of them started saving at 20 years old, while the other started saving at 40 years old. Which statement is correct?

Correct AnswerverifiedShow Answer

If household wealth rises and capital becomes less productive, we would correctly say that:

Correct AnswerverifiedShow Answer

If the federal government taxes the interest rate that savers receive:

Correct AnswerverifiedShow Answer

If the demographics of a nation change and the average age of the nation is approaching middle age, we would expect:

Correct AnswerverifiedShow Answer

Assuming inflation is positive, the real interest rate:

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
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This means that although some firms are ...
View Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Typically, savers in the loanable funds market are the _, and borrowers are _.

Correct Answer
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Correct Answer
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Correct Answer
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