Question 1

In the loanable funds market, if the interest rate is above the equilibrium level

Accepted Answer

When the interest rate is above the equilibrium level, the quantity of loanable funds supplied exceeds the quantity demanded, resulting in a surplus.

Question 2

A 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

When the demand for loanable funds increases in a small country that is a net foreign borrower, both the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing increase. This is because the country will need to borrow more from abroad to meet the increased demand for funds.

Question 3

The Ricardo- Barro effect asserts that government

Accepted Answer

The answer of The Ricardo- Barro effect asserts that government
...

Question 4

Assume you save $1,000 in a bank account that pays 8 per cent interest per year and the inflation rate is 3 per cent. At the end of the year you have earned

Accepted Answer

The nominal return is $80 (8% of $1,000), but the real return accounts for inflation: $80 - $30 (3% of $1,000) = $50.

Question 5

In the global loanable funds market,

Accepted Answer

In the global loanable funds market, loans of equal risk will have equal interest rates due to the risk-return tradeoff principle, where lenders require compensation for taking on additional risk.

Question 6

When the inflation rate is positive, the

Accepted Answer

When the inflation rate is positive, the real interest rate is less than the nominal interest rate because the real interest rate is the nominal interest rate adjusted for inflation.

Question 7

The demand for loanable funds curve is

Accepted Answer

The demand for loanable funds is the amount of funds borrowers (such as investors and businesses) are willing to borrow at each given interest rate. As interest rates increase, the cost of borrowing increases and thus the demand for loanable funds decreases. Therefore, the demand for loanable funds curve is downward sloping when plotted against the real interest rate.

Question 8

The ________ the expected profit, the greater is the ________.

Accepted Answer

Higher expected profit leads to greater investment demand as businesses are more willing to invest in projects that promise higher returns.

Question 9

If the government's budget deficit increases and the Ricardo- Barro effect does not apply,

Accepted Answer

If the Ricardo-Barro effect does not apply, an increase in the government's budget deficit typically leads to higher demand for loanable funds, causing the real interest rate to rise and crowding out private investment, thus decreasing investment.

Question 10

Suppose the market for loanable funds is in equilibrium. If disposable income increases, the equilibrium real interest rate ________ and the quantity of loanable funds ________.

Accepted Answer

An increase in disposable income typically leads to an increase in savings, which shifts the supply of loanable funds to the right. This results in a lower equilibrium real interest rate and an increase in the quantity of loanable funds.

Question 11

-In the above figure, the economy is at point a on the initial supply of loanable funds curve SLF0. What happens if disposable income decreases?

Accepted Answer

A decrease in disposable income would likely lead to a decrease in savings, causing the supply of loanable funds curve to shift leftward.

Question 12

-In the above figure, the initial supply of loanable funds curve is SLF0 and the initial demand for loanable funds curve is DLF0. An economic expansion that raises disposable income and the expected profit would

Accepted Answer

An economic expansion increases disposable income, which can increase savings and thus shift the supply of loanable funds rightward. It also raises expected profits, increasing the demand for loanable funds, shifting that curve rightward as well.

Question 13

The quantity of loanable funds demanded increases so there is a movement downward along the demand for loanable funds curve when

Accepted Answer

When the real interest rate falls, borrowing becomes cheaper, leading to an increase in the quantity of loanable funds demanded, resulting in a movement downward along the demand curve.

Question 14

If disposable income increases, people will decide to ________ saving, the supply of loanable funds will ________ and the real interest rate will ________.

Accepted Answer

When disposable income increases, people tend to save more, which increases the supply of loanable funds. As a result, the real interest rate tends to fall due to the increased availability of funds for lending.

Question 15

At the beginning of the year, your wealth is $10,000. During the year, you have an income of
$80,000 and you spend $90,000 on consumption. You pay no taxes. Your wealth at the end of the year is

Accepted Answer

Your wealth at the end of the year is calculated by adding your initial wealth to your income and then subtracting your consumption. So, $10,000 (initial wealth) + $80,000 (income) - $90,000 (consumption) = $0.

Question 16

Technological progress that increases the expected profit shifts the demand for loanable funds curve

Accepted Answer

Technological progress that increases expected profit leads to more investment opportunities, increasing the demand for loanable funds, which shifts the curve rightward and typically increases the real interest rate.

Question 17

-In the above figure, the demand for loanable funds curve is drawn for the average expected profit. If the real interest rate is constant at 6 per cent and the expected profit falls, the amount of loanable funds demanded will be

Accepted Answer

The answer of 
-In the above figure, the demand for...

Question 18

Investment is financed by which of the following?

Accepted Answer

The answer of Investment is financed by which of the...

Question 19

A small country is a net foreign borrower if 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 20

A firm's decision to invest in a project is based on the

Accepted Answer

A firm's decision to invest in a project is primarily based on the real interest rate, which reflects the true cost of borrowing after adjusting for inflation, and the expected profit, which indicates the potential return on the investment.

Quiz 21: Finance, Saving, and Investment