Question 1

The funds used to buy physical capital are

Accepted Answer

The answer of The funds used to buy physical capital...

Question 2

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 country's foreign lending ________.

Accepted Answer

In a small open economy, an increase in the supply of loanable funds does not change the domestic equilibrium quantity of loanable funds used because the interest rate is determined by the world market. However, the country's foreign lending increases as the excess supply of loanable funds is lent abroad.

Question 3

A small country is a net foreign borrower 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 borrowing ________.

Accepted Answer

When the supply of loanable funds increases in a small open economy that is a net foreign borrower, the domestic interest rate does not change because it is determined by the world interest rate. However, the increased supply of loanable funds reduces the need for foreign borrowing, leading to a decrease in foreign borrowing.

Question 4

In which market would you find mortgage- backed securities?

Accepted Answer

Mortgage-backed securities are found in the bond market as they are a type of bond that is secured by a mortgage or collection of mortgages.

Question 5

Real interest rates around the world tend to

Accepted Answer

Real interest rates around the world tend to be equal after adjusting for differences in risk because financial capital seeks the highest possible return.

Question 6

The total amount spent on new capital in a time period is equal to

Accepted Answer

The answer of The total amount spent on new capital...

Question 7

Greater optimism about the expected profits from investment projects

Accepted Answer

Greater optimism about expected profits increases the demand for investment, shifting the demand for loanable funds curve to the right as businesses seek more funds for investment projects.

Question 8

When a government has a budget surplus, the surplus

Accepted Answer

A budget surplus means that the government is saving more than it is spending. This extra saving can be used to finance investment, which helps to increase the productive capacity of the economy.

Question 9

Which of the following influences household saving?

Accepted Answer

The correct answer is A) I, II, and III, as all three factors typically influence household saving decisions.

Question 10

The term "capital," as used in macroeconomics, refers to

Accepted Answer

In macroeconomics, "capital" refers to physical assets like plant, equipment, buildings, and inventories used in production, not financial wealth or investment.

Question 11

-In the above figure, if the real interest rate is 6 per cent, the quantity of loanable funds demanded is

Accepted Answer

The correct answer is $450 billion, as the quantity of loanable funds demanded at a 6 percent real interest rate is typically determined by the intersection of the demand curve for loanable funds at that interest rate.

Question 12

All of the following are sources of loanable funds EXCEPT

Accepted Answer

Business investment is a use of loanable funds, not a source.

Question 13

-In the above figure, the initial supply of loanable funds curve is SLF0 and the demand for loanable funds investment curve is DLF0. An increase in the real interest rate to 7 per cent could be caused by

Accepted Answer

An increase in investment demand would shift the demand for loanable funds curve to the right, leading to a higher equilibrium real interest rate, such as 7 percent.

Question 14

-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 rises, the amount of loanable funds demanded will be

Accepted Answer

When the expected profit rises, businesses are more willing to borrow at the same interest rate, increasing the demand for loanable funds beyond the initial $450 billion.

Question 15

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

Accepted Answer

The answer of 
-In the above figure, technological progress that...

Question 16

Suppose the real interest rate rises and the quantity of loanable funds increases. These changes could have been the result of

Accepted Answer

When firms expect higher future profits, they are more likely to invest in new projects, increasing the demand for loanable funds. This increased demand can lead to a rise in the real interest rate and an increase in the quantity of loanable funds.

Question 17

-In the above figure, if the real interest rate is 8 per cent, there is

Accepted Answer

A real interest rate of 8 percent suggests that the interest rate is relatively high, which can lead to a surplus of loanable funds as savers are more willing to lend at higher rates, but borrowers may be less inclined to borrow due to the higher cost of borrowing.

Question 18

The nominal interest rate minus the real interest rate approximately equals the

Accepted Answer

The nominal interest rate minus the real interest rate is approximately equal to the inflation rate, according to the Fisher equation.

Question 19

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

Accepted Answer

When households expect an increase in their future incomes, they tend to save less and consume more today because they anticipate having more income in the future to cover expenses.

Question 20

According to the Ricardo- Barro effect,

Accepted Answer

The Ricardo-Barro effect suggests that when the government runs a budget deficit, households anticipate future tax increases to pay off the debt, leading them to increase their personal savings to offset the expected future tax burden.

Quiz 21: Finance, Saving, and Investment