Question 1

The correct production timeline is

Accepted Answer

A)   investment occurs, dollars are borrowed, and output is produced.
B)   dollars are borrowed, investment occurs, and output is produced.
C)   output is produced, dollars are borrowed, and investment occurs.
D)   savings occurs, output is produced, and dollars are borrowed.
E)   borrowing occurs, output is produced, and investment occurs.F) C) and E)
G) A) and B)

Question 2

Businesses became more pessimistic during the Great Recession of 2007-2009. As a result,

Accepted Answer

A)   foreigners were less willing to lend to the United States.
B)   foreigners were more willing to lend to the United States.
C)   investment demand fell.
D)   investment demand increased.
E)   governments in the United States ran more surpluses.F) A) and D)
G) A) and C)

Question 3

Explain why the wave of retiring baby boomers may lead to firms paying higher interest rates for loans.

Accepted Answer

As boomers retire, they switch from savi...

Question 4

As income and wealth rise, we would expect

Accepted Answer

A)   savings to increase as people save some of the extra wealth or income they have.
B)   savings to fall, since people would spend the extra income or wealth.
C)   interest rates to rise.
D)   foreigners with more wealth to move their assets out of the United States to foreign markets.
E)   people to have a negative rate of time preference.F) C) and D)
G) A) and B)

Question 5

What does it mean to say that someone has a strong or a weak time preference? What are the implications for a person's participation in the loanable funds market?

Accepted Answer

Time preference refers to the fact that ...

Question 6

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) B) and D)
G) A) and C)

Question 7

What would happen if foreigners no longer felt the United States was a safe place to lend their money?

Accepted Answer

Foreigners would not be as willing or wi...

Question 8

Which event could be expected to shift a nation's supply of loanable funds as shown in the accompanying graph?

Accepted Answer

A)   a nationwide burst of economic prosperity
B)   increased purchases of foreign stocks by domestic investors
C)   a rise in the culture of instant gratification
D)   a wave of young adults entering the labor force
E)   a wave of people reaching retirement ageF) B) and E)
G) A) and B)

Question 9

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 10

The demand for loanable funds increases while the supply of loanable funds remains constant. This would cause

Accepted Answer

A)   the equilibrium quantity of loanable funds to decrease and the equilibrium interest rate to increase.
B)   the equilibrium quantity of loanable funds to increase and the equilibrium interest rate to decrease.
C)   both the equilibrium quantity of loanable funds and the equilibrium interest rate to increase.
D)   the equilibrium interest rate to decrease, but the equilibrium quantity of loanable funds would remain unchanged.
E)   the equilibrium interest rate to increase, but the equilibrium quantity of loanable funds would remain unchanged.F) C) and E)
G) C) and D)

Question 11

Refer to the following graph to answer the questions:
 
-In the figure, line 2 represents the_______ , and at an interest rate of 6 percent a _______ of loanable funds exists.

Accepted Answer

A)   supply of loanable funds; shortage
B)   quantity demanded of loanable funds; surplus
C)   demand for loanable funds; shortage
D)   quantity supplied of loanable funds; surplus
E)   demand of loanable funds; surplusF) All of the above
G) A) and E)

Question 12

It is likely that as more baby boomers reach retirement,

Accepted Answer

A)   more babies will be born to replace them.
B)   the demand for loanable funds will shift right.
C)   the demand for loanable funds will shift left.
D)   the supply of loanable funds will shift right.
E)   the supply of loanable funds will shift left.F) C) and E)
G) C) and D)

Question 13

You deposit $1,000 in the bank and leave it for five years at 3 percent annual interest, making no additional transactions on this account. At the end of the five years, you withdraw the principal and any accumulated interest; the amount you would withdraw would be

Accepted Answer

A)   $1,000.
B)   $1,030.
C)   $1,150.
D)   more than $1,150 but less than $1,500.
E)   more than $1,500.F) A) and D)
G) All of the above

Question 14

If time preferences increase,

Accepted Answer

A)   the demand for loanable funds will increase.
B)   the demand for loanable funds will decrease.
C)   the supply of loanable funds will increase.
D)   the supply of loanable funds will decrease.
E)   wealth will increase.F) All of the above
G) A) and B)

Question 15

You borrow $10,000 today at a nominal rate of 5 percent; inflation for the past 10 years has been exactly 2 percent. Today, inflation instantly rises to 7 percent and stays that way for the duration of your loan. Based on the above information, ceteris paribus all else equal) , today

Accepted Answer

A)   the real rate of interest on your loan is 14 percent.
B)   the real rate of interest on your loan was previously 10 percent and is now 35 percent.
C)   the real rate of interest on your loan is now -2 percent.
D)   you will pay the lender back exactly $9,500.
E)   you will pay the lender back exactly $10,700.F) A) and B)
G) C) and D)

Question 16

Personal savings as a percentage of disposable income is called the

Accepted Answer

A)   margin of savings.
B)   income percentage.
C)   fraction saved.
D)   savings-to-income ratio.
E)   savings rate.F) B) and D)
G) All of the above

Question 17

If real interest rates fell between 1981 and 2012, then

Accepted Answer

A)   demand for loanable funds shifted right.
B)   quantity demanded of loanable funds increased.
C)   quantity demanded of loanable funds decreased.
D)   quantity supplied of loanable funds increased.
E)   supply of loanable funds shifted left.F) B) and C)
G) A) and E)

Question 18

A young boy is saving money for a baseball bat but is tempted to buy an ice cream cone. If the boy successfully resists buying ice cream and continues to save for the bat, the boy has

Accepted Answer

A)   exchanged high time preferences for low.
B)   exchanged low time preferences for high.
C)   engaged in consumption smoothing.
D)   increased his consumption variance.
E)   increased his wealth.F) B) and C)
G) B) and D)

Question 19

Explain why, although both young adults and the elderly typically spend more than they earn, it makes sense that young people would engage in borrowing while the elderly would engage in dissaving.

Accepted Answer

Young adults have not yet accumulated sa...

Question 20

Why does increased productivity of capital shift the demand for loanable funds?

Accepted Answer

A)   More productive capital generates more profits, reducing the need for firms to borrow money.
B)   More productive capital means greater consumption of raw materials, which must be paid for with borrowed money.
C)   More productive capital boosts competition, which leads to greater demand for loans to keep up with rival firms.
D)   More productive capital reduces workers' incentive to work, which leads to greater demand for loans in order to pay workers more.
E)   More productive capital earns more money, which justifies a higher interest rate on money borrowed to buy the capital.F) B) and C)
G) A) and E)

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

Explain why the wave of retiring baby boomers may lead to firms paying higher interest rates for loans.

Correct AnswerverifiedAs boomers retire, they switch from savi...View AnswerShow Answer

Why does increased productivity of capital shift the demand for loanable funds?

Correct AnswerverifiedShow Answer

If real interest rates fell between 1981 and 2012, then

Correct AnswerverifiedShow Answer

Businesses became more pessimistic during the Great Recession of 2007-2009. As a result,

Correct AnswerverifiedShow Answer

You deposit $1,000 in the bank and leave it for five years at 3 percent annual interest, making no additional transactions on this account. At the end of the five years, you withdraw the principal and any accumulated interest; the amount you would withdraw would be

Correct AnswerverifiedShow Answer

As income and wealth rise, we would expect

Correct AnswerverifiedShow Answer

What does it mean to say that someone has a strong or a weak time preference? What are the implications for a person's participation in the loanable funds market?

Correct AnswerverifiedTime preference refers to the fact that ...View AnswerShow Answer

Which event could be expected to shift a nation's supply of loanable funds as shown in the accompanying graph?

Correct AnswerverifiedShow Answer

Refer to the following graph to answer the questions: -In the figure, line 2 represents the_______ , and at an interest rate of 6 percent a _______ of loanable funds exists.

Correct AnswerverifiedShow Answer

If time preferences increase,

Correct AnswerverifiedShow Answer

What would happen if foreigners no longer felt the United States was a safe place to lend their money?

Correct AnswerverifiedForeigners would not be as willing or wi...View AnswerShow 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

Personal savings as a percentage of disposable income is called the

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

You borrow $10,000 today at a nominal rate of 5 percent; inflation for the past 10 years has been exactly 2 percent. Today, inflation instantly rises to 7 percent and stays that way for the duration of your loan. Based on the above information, ceteris paribus all else equal) , today

Correct AnswerverifiedShow Answer

The correct production timeline is

Correct AnswerverifiedShow Answer

The demand for loanable funds increases while the supply of loanable funds remains constant. This would cause

Correct AnswerverifiedShow Answer

Explain why, although both young adults and the elderly typically spend more than they earn, it makes sense that young people would engage in borrowing while the elderly would engage in dissaving.

Correct AnswerverifiedYoung adults have not yet accumulated sa...View AnswerShow Answer

It is likely that as more baby boomers reach retirement,

Correct AnswerverifiedShow Answer

A young boy is saving money for a baseball bat but is tempted to buy an ice cream cone. If the boy successfully resists buying ice cream and continues to save for the bat, the boy has

Correct AnswerverifiedShow Answer

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As boomers retire, they switch from savi...
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Time preference refers to the fact that ...
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Refer to the following graph to answer the questions: -In the figure, line 2 represents the_ , and at an interest rate of 6 percent a _ of loanable funds exists.

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Foreigners would not be as willing or wi...
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This means that although some firms are ...
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Young adults have not yet accumulated sa...
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