Question 1

If a country has a shortage of loanable funds at the world real interest rate ________.

Accepted Answer

When a country has a shortage of loanable funds at the world real interest rate, it attracts foreign capital, leading world suppliers of loanable funds to move funds to this country to take advantage of higher returns.

Question 2

A very small country is a net foreign borrower and its demand for loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Accepted Answer

If a very small country is a net foreign borrower and its demand for loanable funds increases, the equilibrium interest rate in the country will increase. This will result in an increase in the quantity of loanable funds supplied in the country. However, since the country is a net foreign borrower, it will still need to borrow more funds from foreign sources to meet its increased demand for loanable funds. Therefore, the equilibrium quantity of loanable funds used in the country will increase and the country's foreign borrowing will also increase. Thus, option C is the correct answer.

Question 3

Choose the statement that is incorrect.

Accepted Answer

The answer of Choose the statement that is incorrect.
...

Question 4

The real interest rate is ________ in Canada compared to Zimbabwe because ________.

Accepted Answer

The real interest rate is lower in Canada compared to Zimbabwe because there is a lower risk premium in Canada. This means that investors are more confident in the stability and growth potential of Canada's economy, resulting in a lower premium charged for borrowing funds.

Question 5

A very small country is a net foreign borrower.Its supply of loanable funds increases but it still remains a net foreign borrower.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Accepted Answer

The answer of A very small country is a net...

Question 6

Real interest rates around the world tend to

Accepted Answer

Real interest rates tend to equalize across countries after adjusting for risk because financial capital moves to where it can earn the highest real return, leading to an equilibrium.

Question 7

Table 23.3.5
 
-Refer to Table 23.3.5.The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule when the government's budget is balanced.If the government budget surplus is $2.0 trillion,the real interest rate is ________ percent a year,the quantity of investment is ________ trillion,and the quantity of private saving is ________ trillion.

Accepted Answer

With a government budget surplus, the supply of loanable funds will increase, shifting the supply curve to the right. This will decrease the equilibrium real interest rate and increase the quantity of investment. Since the quantity of investment is increasing, it must be that private saving is decreasing (due to the equation I = S - (T - G) - M). Therefore, we are looking for a decrease in private saving and an increase in investment. Choice E is the only option that fits this criteria, with a real interest rate of 6%, $7.5 trillion in investment, and $5.5 trillion in private saving.

Question 8

If the world real interest rate falls,then a country that is a net foreign lender

Accepted Answer

If the world real interest rate falls, it means that the return on lending has decreased. As a result, a country that is a net foreign lender is likely to decrease the amount of its lending since it is not getting as high a return as before.

Question 9

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the ________ demand and the supply of loanable funds is determined by the ________ supply.

Accepted Answer

In a globally integrated economy, the demand for loanable funds is determined by the country's demand, while the supply is determined by the world's supply, as capital can flow across borders.

Question 10

Table 23.3.4
 
-Refer to Table 23.3.4.The table shows an economy's demand for loanable funds schedule and the private supply of loanable funds schedule when the government's budget is balanced.If the government budget deficit is $1.0 trillion,the real interest rate is ________ percent a year,the quantity of investment is ________ trillion,and the quantity of private saving is ________ trillion.

Accepted Answer

The answer of Table 23.3.4
 
-Refer to Table 23.3.4.The table...

Question 11

A very 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 country's foreign lending ________.

Accepted Answer

Since the country is a net foreign lender, an increase in the supply of loanable funds will not affect the demand for loanable funds within the country. Therefore, the equilibrium quantity of loanable funds used in the country will not change. However, the country's foreign lending will increase because there is a larger supply of loanable funds available for lending to other countries.

Question 12

The government of Greece is running a large budget deficit.With no Ricardo-Barro effect,which of the following events will occur?
I.The supply curve of loanable funds will shift leftward.
II.A higher real interest rate crowds out investment.
III.Saving increases.

Accepted Answer

With no Ricardo-Barro effect, the government's budget deficit will increase the demand for loanable funds, leading to a higher equilibrium interest rate. As a result, the supply curve of loanable funds will shift leftward (I) and a higher real interest rate will crowd out investment (II). Since the budget deficit implies that the government is consuming more than it is producing, it cannot lead to an increase in national saving, so III is incorrect.

Question 13

A government budget surplus occurs,which ________ loanable funds.The real interest rate ________,household saving ________,and investment ________.

Accepted Answer

The answer of A government budget surplus occurs,which ________ loanable...

Question 14

Table 23.3.3
 
-Refer to Table 23.3.3.The table shows the demand for loanable funds schedule and the private supply of loanable funds schedule when the government's budget is balanced.If the Ricardo-Barro effect occurs,and if the government budget deficit is $2.0 trillion,the real interest rate is ________ percent a year and the quantity of investment is ________ trillion.

Accepted Answer

The answer of Table 23.3.3
 
-Refer to Table 23.3.3.The table...

Question 15

A small country is a net foreign borrower.Its real interest rate without foreign borrowing is ________ the world real interest rate.

Accepted Answer

The answer of A small country is a net foreign...

Question 16

An increase in the government budget deficit ________.If the country is an international borrower,the government budget deficit ________.If the country is an international lender,the government budget deficit ________.

Accepted Answer

An increase in the government budget deficit increases the demand for loanable funds as the government needs to borrow more money to finance its spending. If the country is an international borrower, then an increase in the government budget deficit will increase foreign borrowing, as the country will need to borrow more money from other countries to finance its deficit. However, if the country is an international lender, then an increase in the government budget deficit will decrease foreign lending, as the country will have less money to lend to other countries due to its increased demand for loanable funds.

Question 17

Table 23.3.2
 
-Refer to Table 23.3.2.The table shows an economy's demand for loanable funds and supply of loanable funds schedules when the government's budget is balanced.The quantity of loanable funds demanded increases by $1 trillion at each real interest rate and the quantity of loanable funds supplied increases by $2 trillion at each real interest rate.If the government wants investment to be $9 trillion,it must ________ its budget balance by ________ trillion.

Accepted Answer

The answer of Table 23.3.2
 
-Refer to Table 23.3.2.The table...

Question 18

If we import more than we export from the rest of the world we

Accepted Answer

When a country imports more goods and services from the rest of the world than it exports, it has a trade deficit. This means it is buying more than it is selling and is consuming more than it is producing. To pay for this excess consumption, the country must borrow funds from the rest of the world. Therefore, a country that imports more than it exports is a net borrower of funds from the rest of the world.

Question 19

Loanable funds flow among countries because ________.

Accepted Answer

Loanable funds flow from countries with lower real interest rates to countries with higher real interest rates, as investors seek higher returns on their investments. The real interest rate takes into account inflation, which means that a country with lower inflation rates will have a higher real interest rate. Therefore, funds flow into the country with the highest real interest rate and out of the country in which the real interest rate is lowest.

Question 20

In the market for loanable funds,a larger government surplus leads to

Accepted Answer

The answer of In the market for loanable funds,a larger...

Quiz 23: Finance, Saving, and Investment

If a country has a shortage of loanable funds at the world real interest rate ________.

A very small country is a net foreign borrower and its demand for loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing .

Choose the statement that is incorrect.

The real interest rate is in Canada compared to Zimbabwe because .

A very small country is a net foreign borrower.Its supply of loanable funds increases but it still remains a net foreign borrower.As a result,the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing .

Real interest rates around the world tend to

If the world real interest rate falls,then a country that is a net foreign lender

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the demand and the supply of loanable funds is determined by the supply.

A very 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 country's foreign lending .

The government of Greece is running a large budget deficit.With no Ricardo-Barro effect,which of the following events will occur? I.The supply curve of loanable funds will shift leftward. II.A higher real interest rate crowds out investment. III.Saving increases.

A government budget surplus occurs,which loanable funds.The real interest rate ,household saving ,and investment .

A small country is a net foreign borrower.Its real interest rate without foreign borrowing is ________ the world real interest rate.

An increase in the government budget deficit .If the country is an international borrower,the government budget deficit .If the country is an international lender,the government budget deficit .

If we import more than we export from the rest of the world we

Loanable funds flow among countries because ________.

In the market for loanable funds,a larger government surplus leads to