Question 1

The supply of loanable funds curve is upward sloping because a rise in the interest rate

Accepted Answer

A)   decreases the opportunity cost of firms' investment spending.
B)   increases the opportunity cost of firms' investment spending.
C)   decreases the opportunity cost to households of consuming.
D)   increases the opportunity cost to households of consuming.E) B) and D)
F) B) and C)

Question 2

The quantity supplied of loanable funds is greater if real interest rates are higher.

Accepted Answer

A) True 
 B)False

Question 3

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

Accepted Answer

A)   the demand for loanable funds will increase and the interest rate will increase.
B)   the demand for loanable funds will increase and the interest rate will remain constant.
C)   the supply of loanable funds will increase and the interest rate will decrease.
D)   neither the demand nor the supply of loanable funds will change.E) A) and C)
F) None of the above

Question 4

If government spending exceeds tax collections,

Accepted Answer

A)   there is a budget deficit.
B)   public debt will fall
C)   there is a budget surplus.
D)   private saving is positive.
E)   public saving is positive.F) A) and B)
G) A) and C)

Question 5

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Accepted Answer

The claim that an increase in the intere...

Question 6

Economists say that investment occurs when

Accepted Answer

A)   someone buys shares on the London or Paris or Frankfurt Stock Exchange, or any other stock exchange.
B)   someone buys a government bond.
C)   a firm increases its capital stock.
D)   a government buys goods from another country.E) A) and D)
F) All of the above

Question 7

When a business firm sells a bond, it has obtained equity finance.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is an example of equity finance?

Accepted Answer

A)   Corporate bonds
B)   Bank loan
C)   All of these answers are equity finance.
D)   Government bonds
E)   Company sharesF) B) and D)
G) A) and B)

Question 9

Public saving is always positive.

Accepted Answer

A) True 
 B)False

Question 10

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Accepted Answer

When the interest rate rises investment ...

Question 11

Consider a closed economy (with no foreign trade) . Assuming the economy is in equilibrium, use the following information to determine the amount of funds supplied to the loanable funds market. 
  Consumption Spending €350 billion  Net Taxes €270 billion  Household Saving €250 billion  Investment Spending €220 billion  Government Purchases €300 billion \begin{array}{ll}	ext { Consumption Spending } & € 350 	ext { billion } \	ext { Net Taxes } & € 270 	ext { billion } \	ext { Household Saving } & € 250 	ext { billion } \	ext { Investment Spending } & € 220 	ext { billion } \	ext { Government Purchases } & € 300 	ext { billion }\end{array} Consumption Spending  Net Taxes  Household Saving  Investment Spending  Government Purchases ​€350 billion €270 billion €250 billion €220 billion €300 billion ​

Accepted Answer

A)   €220 billion
B)   €250 billion
C)   €270 billion
D)   €300 billion E) None of the above
F) B) and D)

Question 12

If an asset functions as a medium of exchange it

Accepted Answer

A)   holds its value over a long period of time.
B)   can be used by people to pay for transactions.
C)   can be used by firms for debt financing.
D)   can be used by firms for equity financing.E) A) and C)
F) A) and B)

Question 13

If UK citizens become less concerned with the future and save less at each real interest rate, real interest rates

Accepted Answer

A)   rise and investment falls.
B)   rise and investment rises.
C)   fall and investment rises.
D)   fall and investment falls.E) B) and D)
F) A) and B)

Question 14

If the public consumes €100 billion less and the government purchases €100 billion more (other things unchanging) , which of the following statement is true?

Accepted Answer

A)   Saving is unchanged.
B)   There is an increase in saving and the economy should grow more quickly.
C)   There is a decrease in saving and the economy should grow more slowly.
D)   There is not enough information to determine what will happen to saving.E) A) and D)
F) All of the above

Question 15

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Accepted Answer

As shown in the graph below, the economy...

Question 16

Bond markets allow firms to pursue

Accepted Answer

A)   equity financing.
B)   debt financing.
C)   limited growth policies.
D)   government loans and subsidy programmes.E) A) and B)
F) A) and C)

Question 17

An increase in the budget deficit will

Accepted Answer

A)   raise the real interest rate and decrease the quantity of loanable funds demanded for investment.
B)   lower the real interest rate and increase the quantity of loanable funds demanded for investment.
C)   raise the real interest rate and increase the quantity of loanable funds demanded for investment.
D)   lower the real interest rate and decrease the quantity of loanable funds demanded for investment.E) B) and D)
F) All of the above

Question 18

The four categories of expenditures that make up GDP are consumption,

Accepted Answer

A)   investment, net exports, and government expenditures.
B)   investment, government purchases, and depreciation.
C)   interest, government purchases, and net exports.
D)   investment, exports, and rental expenditures.E) B) and C)
F) A) and D)

Question 19

Which of the following financial market securities would probably pay the highest interest rate?

Accepted Answer

A)   A bond issued by a large, well-established (blue chip)  company.
B)   A bond issued by a start-up company in a newly emerging industry.
C)   A government bond issued by the government of France.
D)   They would all pay about the same rate of interest.E) C) and D)
F) All of the above

Question 20

Households make their savings available to borrowers through

Accepted Answer

A)   resource markets.
B)   the loanable funds market.
C)   the labour market.
D)   taxes.E) B) and C)
F) A) and D)

Exam 24: Saving, Investment and the Financial System

Households make their savings available to borrowers through

Correct Answer
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Economists say that investment occurs when

Correct Answer
verified

The four categories of expenditures that make up GDP are consumption,

Correct Answer
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Public saving is always positive.

Correct Answer
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Correct Answer
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If government spending exceeds tax collections,

Correct Answer
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Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct Answer
verified
When the interest rate rises investment ...
View Answer

The quantity supplied of loanable funds is greater if real interest rates are higher.

Correct Answer
verified

If an asset functions as a medium of exchange it

Correct Answer
verified

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct Answer
verified
As shown in the graph below, the economy...
View Answer

When a business firm sells a bond, it has obtained equity finance.

Correct Answer
verified

If the public consumes €100 billion less and the government purchases €100 billion more (other things unchanging) , which of the following statement is true?

Correct Answer
verified

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

Correct Answer
verified

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct Answer
verified
The claim that an increase in the intere...
View Answer

An increase in the budget deficit will

Correct Answer
verified

Which of the following is an example of equity finance?

Correct Answer
verified

Which of the following financial market securities would probably pay the highest interest rate?

Correct Answer
verified

If UK citizens become less concerned with the future and save less at each real interest rate, real interest rates

Correct Answer
verified

Bond markets allow firms to pursue

Correct Answer
verified

The supply of loanable funds curve is upward sloping because a rise in the interest rate

Correct Answer
verified

Exam 24: Saving, Investment and the Financial System

Households make their savings available to borrowers through

Correct AnswerverifiedShow Answer

Economists say that investment occurs when

Correct AnswerverifiedShow Answer

The four categories of expenditures that make up GDP are consumption,

Correct AnswerverifiedShow Answer

Public saving is always positive.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

If government spending exceeds tax collections,

Correct AnswerverifiedShow Answer

Explain why the demand for loanable funds slopes downward and why the supply of loanable funds slopes upward.

Correct AnswerverifiedWhen the interest rate rises investment ...View AnswerShow Answer

The quantity supplied of loanable funds is greater if real interest rates are higher.

Correct AnswerverifiedShow Answer

If an asset functions as a medium of exchange it

Correct AnswerverifiedShow Answer

Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if the government budget goes from a deficit to a surplus.

Correct AnswerverifiedAs shown in the graph below, the economy...View AnswerShow Answer

When a business firm sells a bond, it has obtained equity finance.

Correct AnswerverifiedShow Answer

If the public consumes €100 billion less and the government purchases €100 billion more (other things unchanging) , which of the following statement is true?

Correct AnswerverifiedShow Answer

If taxes are reduced with no change in government spending, and people save all the money from the tax cut,

Correct AnswerverifiedShow Answer

The model of the market for loanable funds shows that an investment tax credit will cause interest rates to rise and investment to rise. Yet we also suppose that higher interest rates lead to lower investment. How can these two conclusions be reconciled?

Correct AnswerverifiedThe claim that an increase in the intere...View AnswerShow Answer

An increase in the budget deficit will

Correct AnswerverifiedShow Answer

Which of the following is an example of equity finance?

Correct AnswerverifiedShow Answer

Which of the following financial market securities would probably pay the highest interest rate?

Correct AnswerverifiedShow Answer

If UK citizens become less concerned with the future and save less at each real interest rate, real interest rates

Correct AnswerverifiedShow Answer

Bond markets allow firms to pursue

Correct AnswerverifiedShow Answer

The supply of loanable funds curve is upward sloping because a rise in the interest rate

Correct AnswerverifiedShow Answer

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When the interest rate rises investment ...
View Answer

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As shown in the graph below, the economy...
View Answer

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Correct Answer
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Correct Answer
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The claim that an increase in the intere...
View Answer

Correct Answer
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