Question 1

A nonprice determinant of the supply of loanable funds would be

Accepted Answer

A change in the level of household time preferences is a nonprice determinant of the supply of loanable funds because it is not related to the interest rate. Household time preferences refer to how willing individuals are to save their money and delay consumption, which can affect the amount of funds available for borrowing. Business future profit expectations, government deficits, and better technology all have some impact on the interest rate, making them price determinants of the supply of loanable funds.

Question 2

A young girl is saving money for a soccer ball but is tempted to buy a book. If the girl buys a book rather than continuing to save for the ball, the

Accepted Answer

If the girl buys a book rather than continuing to save for the soccer ball, she has exchanged low time preferences (wanting something now) for high time preferences (delaying gratification and saving for a future goal). This is because the book provides immediate satisfaction, while the soccer ball requires longer-term saving. Therefore, she has chosen a more immediate benefit over a future one.

Question 3

Your roommate arrives home and says, "I am so hungry, I would give up my iPhone for a bowl of chili right now." You're famished, too, but you say, "Here is my chili-let's trade." You have a _______ time preference than your roommate, because_______ .

Accepted Answer

Choosing to give up a bowl of chili (an immediate benefit) for the long-term benefit of keeping your iPhone indicates a stronger time preference. Your roommate's statement shows a weaker time preference as they are willing to give up their iPhone (long-term benefit) for the immediate benefit of a bowl of chili.

Question 4

T. D. Goneworth, a financial services firm, makes people want their money and want it now. If the firm is successful in advertising this message and convinces people to believe it, then, all else equal, T. D. Goneworth has

Accepted Answer

The answer of T. D. Goneworth, a financial services firm,...

Question 5

Those with the least patience

Accepted Answer

People with a high time preference value present consumption over future consumption, and hence, they demand immediate gratification, having the least patience. They discount the future heavily, which suggests that they will save less and borrow more, demanding a higher nominal interest rate. As a result, they indulge in consumption smoothing when it comes to handling their resources.

Question 6

The notion of consumption smoothing means

Accepted Answer

The answer of The notion of consumption smoothing means
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Question 7

When people withdraw funds from their savings, economists call this

Accepted Answer

Economists refer to withdrawing funds from savings as dissaving.

Question 8

If the demographics of a nation change and the average age of the nation is approaching middle age, we would expect

Accepted Answer

The answer of If the demographics of a nation change...

Question 9

If foreign income and wealth decrease, this would most likely

Accepted Answer

If foreign income and wealth decrease, foreigners would likely have less money to invest or loan out, reducing the supply of loanable funds available in the market. This would lead to an increase in interest rates, making it more expensive for individuals and businesses to borrow, and potentially leading to a decrease in investment and economic growth.

Question 10

Typically a college degree is "worth it," but it requires

Accepted Answer

Pursuing a college degree requires low time preferences, meaning that individuals are willing to delay instant gratification and invest time and money into their education in order to reap the benefits later in life. This typically involves sacrificing current consumption for the potential of higher future consumption. While a large supply of loanable funds can make obtaining a degree easier, it is not a requirement for it to be "worth it." The other options (A, C, D) do not accurately capture the necessary mindset or conditions for a college degree to be worth pursuing.

Question 11

If time preferences increase,

Accepted Answer

The answer of If time preferences increase,
...

Question 12

Time preferences mean

Accepted Answer

Time preferences refer to how much individuals value present versus future consumption. People with high time preferences would prefer to have goods sooner rather than later, whereas people with low time preferences would be willing to wait for goods that may be more valuable in the future.

Question 13

If life expectancy falls due to AIDS and other diseases, we would expect

Accepted Answer

If life expectancy falls due to AIDS and other diseases, individuals may prioritize present consumption over future consumption due to the belief that they may not live long enough to enjoy future consumption. This would lead to a rise in time preference and a decrease in savings. Therefore, the answer would be D, time preference to rise and savings to decrease.

Question 14

Based on the relationship between consumption and income, someone in his or her "prime earning years" is most

Accepted Answer

The answer of Based on the relationship between consumption and...

Question 15

Assume an epidemic hits a nation hard. As a result, people now have lower life expectancies. The most likely result would be

Accepted Answer

Since people are now dying at younger ages, they will save less over their lifetimes, resulting in a lower supply of loanable funds. This will lead to an increase in interest rates, as the demand for funds from borrowers will remain relatively constant.

Question 16

Stewart Shopaholic, a compulsive shopper who likes to spend a lot of money all the time,

Accepted Answer

A high time preference means the individual prefers immediate consumption over saving and investing for the future. In this case, the compulsive shopper prefers to spend a lot of money all the time rather than save or invest for the future.

Question 17

Most people have a time preference. Since this is true, they

Accepted Answer

The answer of Most people have a time preference. Since...

Question 18

Higher education

Accepted Answer

Studies have consistently shown that individuals with higher levels of education, particularly those with bachelor's degrees or higher, earn more over their lifetime compared to those with lower levels of education. This is due to a number of factors, including increased job opportunities and higher salaries for jobs that require more education. Of course, there are exceptions to this general trend and individual circumstances can vary, but on average higher education leads to higher lifetime earnings.

Question 19

A young boy is saving money for a baseball bat but is tempted to buy an ice cream cone. If the boy successfully resists buying ice cream and continues to save for the bat, the boy has

Accepted Answer

By resisting the temptation to buy an ice cream cone and continuing to save for the baseball bat, the boy is exhibiting high time preferences, which means he values future consumption more than present consumption. Choosing to delay gratification and saving towards the bigger goal demonstrates an exchange of high time preferences for low time preferences.

Question 20

In a country, very old and very young people spend more than their incomes. Yet in that same country, the people who are middle-aged tend to save for retirement. If this scenario is true, it best describes

Accepted Answer

The situation described in the scenario suggests that the middle-aged population is engaging in consumption smoothing, which is the behavior of saving during working years in order to have a stable level of consumption during retirement. The fact that the very old and very young are spending more than their incomes could be attributed to time preferences, but it is not certain from the information provided. Nominal interest rates and the demand for loanable funds are not relevant to the scenario. Consumption variance is not a concept in economics.

Quiz 9: Savings, Interest Rates, and the Market for Loanable Funds