Question 1

A nationʹs investment must be financed by

Accepted Answer

A)   borrowing from the rest of the world only.
B)   the governmentʹs budget deficit.
C)   national saving plus borrowing from the rest of the world.
D)   national saving only.

Question 2

-In the above figure, technological progress that increases the expected profit will

Accepted Answer

A)   have no effect on the demand for loanable funds curve.
B)   make the demand for loanable funds curve become horizontal.
C)   shift the demand for loanable funds curve leftward.
D)   shift the demand for loanable funds curve rightward.

Question 3

In the loanable funds market, the supply comes from

Accepted Answer

A)   only the government budget surplus and international borrowing
B)   only saving
C)   saving, the government budget surplus and international borrowing
D)   only saving and the government budget surplus

Question 4

As the purchasing power of wealth increases, saving decreases.

Accepted Answer

A) True 
 B)False

Question 5

If households expect an increase in their future incomes, they will save

Accepted Answer

A)   and consume less today
B)   more and consume less today
C)   less and consume more today
D)   and consume more today

Question 6

When a government has a budget surplus, the surplus

Accepted Answer

A)   increases the world real interest rate.
B)   helps finance investment.
C)   crowds-out private saving.
D)   must be subtracted from private saving to get total saving.

Question 7

Which of the following is true?
I. As the real interest rate increases, people increase the quantity they save.
II. The supply of loanable funds curve is downward sloping.
III. As disposable income increases, the supply of loanable funds curve becomes steeper.

Accepted Answer

A)   II and III
B)   III only
C)   I only
D)   I and III

Question 8

In 2007, Franceʹs GDP totalled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. investment in 2007 was billion.

Accepted Answer

A)   Net; $129
B)   Gross; $129
C)   Net; $228
D)   Gross; $216

Question 9

-In the above figure, new expectations of booming business conditions and a higher expected profit will

Accepted Answer

A)   shift the demand for loanable funds curve rightward.
B)   shift the demand for loanable funds curve leftward.
C)   make the demand for loanable funds curve become horizontal.
D)   have no effect on the demand for loanable funds curve.

Question 10

A small country is a net foreign lender and its supply of loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country and the countryʹs foreign lending .

Accepted Answer

A)   does not change; does not change
B)   does not change; increases
C)   increases; does not change
D)   increases; decreases

Question 11

If the government begins to run a larger budget deficits, then assuming there is no Ricardo -Barro effect, the demand for loanable funds and the real interest rate .

Accepted Answer

A)   decreases; falls
B)   increases; falls
C)   increases; rises
D)   decreases; rises

Question 12

A decrease in disposable income shifts the .

Accepted Answer

A)   demand for loanable funds curve rightward
B)   demand for loanable funds curve leftward
C)   supply of loanable funds curve rightward
D)   supply of loanable funds curve leftward

Question 13

In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a
Real interest rate and a equilibrium quantity of investment.

Accepted Answer

A)   higher; higher
B)   lower; lower
C)   higher; lower
D)   lower; higher

Question 14

-In the above figure, a decrease in the real interest rate will result in a movement from point E to

Accepted Answer

A)   point I.
B)   point F.
C)   point H.
D)   point G.

Question 15

In 2008, the many people became unable to make payments on their mortgages and instead defaulted on them. As a result, the of loanable funds curve shifts and real interest rate .

Accepted Answer

A)   supply; rightward; falls.
B)   supply; leftward; increases
C)   demand; leftward; increases.
D)   demand; rightward; decreases.

Question 16

ʺAn increase in the real interest rate increases the quantity of investment.ʺ Is the previous statement correct or incorrect?

Accepted Answer

The statement is false. The in...

Question 17

The term ʺcrowding outʺ relates to the decrease in

Accepted Answer

A)   consumption expenditure from an increase in investment.
B)   private investment from a government budget deficit.
C)   the real interest rate from a government budget deficit.
D)   saving from an increase in disposable income.

Question 18

If householdsʹ disposable income decreases, then

Accepted Answer

A)   householdsʹ saving will increase.
B)   investment will increase.
C)   householdsʹ saving will decrease.
D)   Both B and C are correct.

Question 19

Which of the following is NOT a determinant of household saving?

Accepted Answer

A)   disposable income
B)   the householdʹs wealth
C)   the nominal interest rate
D)   expected future income

Question 20

When the actual real interest rate is less than the equilibrium real interest rate,

Accepted Answer

A)   the equilibrium real interest rate will rise.
B)   borrowers find it difficult to borrow.
C)   there is a shortage of loanable funds.
D)   Both answers B and C are correct.

Exam 7: Finance, Saving, and Investment

In the absence of the Ricardo-Barro effect, an increase in the government deficit results in a Real interest rate and a equilibrium quantity of investment.

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If households expect an increase in their future incomes, they will save

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-In the above figure, new expectations of booming business conditions and a higher expected profit will

Correct AnswerverifiedShow Answer

As the purchasing power of wealth increases, saving decreases.

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In the loanable funds market, the supply comes from

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When the actual real interest rate is less than the equilibrium real interest rate,

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If the government begins to run a larger budget deficits, then assuming there is no Ricardo -Barro effect, the demand for loanable funds and the real interest rate .

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Which of the following is NOT a determinant of household saving?

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-In the above figure, technological progress that increases the expected profit will

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Which of the following is true? I. As the real interest rate increases, people increase the quantity they save. II. The supply of loanable funds curve is downward sloping. III. As disposable income increases, the supply of loanable funds curve becomes steeper.

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ʺAn increase in the real interest rate increases the quantity of investment.ʺ Is the previous statement correct or incorrect?

Correct AnswerverifiedThe statement is false. The in...View AnswerShow Answer

-In the above figure, a decrease in the real interest rate will result in a movement from point E to

Correct AnswerverifiedShow Answer

A small country is a net foreign lender and its supply of loanable funds increases. As a result, the equilibrium quantity of loanable funds used in the country and the countryʹs foreign lending .

Correct AnswerverifiedShow Answer

When a government has a budget surplus, the surplus

Correct AnswerverifiedShow Answer

In 2007, Franceʹs GDP totalled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. investment in 2007 was billion.

Correct AnswerverifiedShow Answer

If householdsʹ disposable income decreases, then

Correct AnswerverifiedShow Answer

A nationʹs investment must be financed by

Correct AnswerverifiedShow Answer

The term ʺcrowding outʺ relates to the decrease in

Correct AnswerverifiedShow Answer

A decrease in disposable income shifts the .

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In 2008, the many people became unable to make payments on their mortgages and instead defaulted on them. As a result, the of loanable funds curve shifts and real interest rate .

Correct AnswerverifiedShow Answer

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The statement is false. The in...
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