Question 1

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S. interest rates.

Accepted Answer

When foreign investors increase their holdings of U.S. securities, they are essentially buying more U.S. assets, which means they are supplying more funds to the U.S. financial markets. This increase in the supply of loanable funds tends to lower interest rates, as there is more money available for borrowing.

Question 2

If the economy weakens, there is ____ pressure on interest rates. If the Federal Reserve increases the money supply there is ____ pressure on interest rates (assume that inflationary expectations are not affected).

Accepted Answer

The answer of If the economy weakens, there is ____...

Question 3

If economic expansion is expected to increase, then demand for loanable funds should ____ and interest rates should ____.

Accepted Answer

If economic expansion is expected to increase, then there will be more demand for loans by businesses and individuals. This increase in demand for loanable funds will cause the interest rates to increase, as lenders will want to charge more to compensate for the increased demand.

Question 4

A ____ federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an ____ shift in the demand schedule.

Accepted Answer

When the federal government deficit increases, it raises the demand for loanable funds, which shifts the demand schedule outward, increasing the interest rate. So, the correct answer is B, higher; outward.

Question 5

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will ____, and the U.S. interest rates will ____.

Accepted Answer

When Japanese interest rates rise, it becomes more attractive for Japanese investors to keep their funds in Japan, as they can earn higher returns. This reduces the supply of loanable funds provided by Japanese investors to the United States, leading to an increase in U.S. interest rates. Therefore, the correct choice is (D) decrease in supply of loanable funds and an increase in U.S. interest rates.

Question 6

If the aggregate demand for loanable funds increases without a corresponding ____ in aggregate supply, there will be a ____ of loanable funds.

Accepted Answer

When the aggregate demand for loanable funds increases without a corresponding increase in aggregate supply, interest rates are likely to increase. This is because borrowers are competing for a limited pool of funds. When interest rates increase, lenders will have an incentive to supply more funds, but borrowers may not be willing to borrow as much at the higher rates. Thus, there will be a shortage of loanable funds.

Question 7

If inflation and nominal interest rates move more closely together over time than they did in earlier periods, this would ____ the volatility of the real interest rate movements over time.

Accepted Answer

If inflation and nominal interest rates move more closely together, it implies that changes in inflation are more closely matched by changes in nominal interest rates. This would stabilize the real interest rate (nominal interest rate minus inflation), thus decreasing its volatility over time.

Question 8

Due to expectations of lower inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

Accepted Answer

Lower inflation expectations mean that people anticipate lower future prices for goods and services. This means that the real interest rate (i.e. the nominal rate adjusted for inflation) that investors and savers demand for lending out their funds should decrease, making loans more affordable. As a result, the supply of loanable funds will increase as savers will be more willing to lend at lower real interest rates. Meanwhile, the demand for loanable funds decreases because borrowing becomes cheaper, so investors will wish to borrow more to finance their investments.

Question 9

Due to expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

Accepted Answer

Higher expected inflation usually leads to a decrease in the supply of loanable funds as lenders anticipate lower real returns. Simultaneously, the demand for loanable funds increases as borrowers seek to lock in current interest rates before they rise.

Question 10

If economic expansion is expected to decrease, the demand for loanable funds should ____ and interest rates should ____.

Accepted Answer

When economic expansion is expected to decrease, the demand for loanable funds decreases because businesses and consumers are less likely to borrow for investment and spending. This decrease in demand typically leads to lower interest rates as lenders try to attract borrowers.

Question 11

If the real interest rate is expected by a particular person to become negative, then the purchasing power of his or her savings would be ____, as the inflation rate is expected to be ____ the existing nominal interest rate.

Accepted Answer

If the real interest rate is negative, it means that inflation is greater than the nominal interest rate, leading to a decrease in the purchasing power of savings.

Question 12

Assume that foreign investors who have invested in U.S. securities decide to decrease their holdings of U.S. securities and to instead increase their holdings of securities in their own countries. This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S. interest rates.

Accepted Answer

When foreign investors decrease their holdings of U.S. securities, it means that they are selling these securities. As a result, the supply of loanable funds in the United States will decrease because there are fewer funds available for borrowers to borrow. With less supply of loanable funds, interest rates will increase because borrowers will have to pay higher interest rates to attract lenders to lend them money. Therefore, the answer is A - decrease; upward.

Question 13

If the federal government needs to borrow additional funds, this borrowing reflects a(n) ____ in the supply of loanable funds, and a(n) ____ in the demand for loanable funds.

Accepted Answer

When the federal government borrows additional funds, it does not affect the supply of loanable funds (which comes from households, firms, and foreign lenders), but it increases the demand for loanable funds. Therefore, the answer is C: no change in the supply of loanable funds, and an increase in the demand for loanable funds.

Question 14

If investors shift funds from stocks into bank deposits, this ____ the supply of loanable funds, and places ____ pressure on interest rates.

Accepted Answer

When investors move their money from stocks to bank deposits, the amount of money available for banks to lend out increases. This increase in the supply of loanable funds typically leads to a decrease in interest rates, as banks have more funds to lend and may reduce rates to attract borrowers.

Question 15

If the federal government reduces its budget deficit, this causes a(n) ____ in the supply of loanable funds, and a(n) ____ in the demand for loanable funds.

Accepted Answer

The answer of If the federal government reduces its budget...

Question 16

If inflation turns out to be lower than expected

Accepted Answer

If inflation turns out to be lower than expected, savers benefit because the purchasing power of their savings increase. As the cost of goods and services decline, the money saved can buy more than before.

Question 17

What is the basis of the relationship between the Fisher effect and the loanable funds theory?

Accepted Answer

The answer of What is the basis of the relationship...

Question 18

Which of the following will probably not result in an increase in the business demand for loanable funds?

Accepted Answer

A recession typically results in a decrease in business investment and therefore a decrease in demand for loanable funds. The other options suggest an increase in demand for loanable funds.

Question 19

Canada and the U.S. are major trading partners. If Canada experiences a major increase in economic growth, it could place ____ pressure on Canadian interest rates and ____ pressure on U.S. interest rates.

Accepted Answer

A major increase in economic growth in Canada could lead to higher demand for money, thus placing upward pressure on Canadian interest rates. This growth could also increase demand for U.S. goods, potentially leading to higher U.S. economic activity and upward pressure on U.S. interest rates.

Question 20

If the real interest rate was stable over time, this would suggest that there is ____ relationship between inflation and nominal interest rate movements.

Accepted Answer

A stable real interest rate implies that changes in the nominal interest rate are directly related to changes in inflation, indicating a positive relationship as described by the Fisher equation.

Quiz 2: Determination of Interest Rates

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to and should place pressure on U.S. interest rates.

If the economy weakens, there is pressure on interest rates. If the Federal Reserve increases the money supply there is pressure on interest rates (assume that inflationary expectations are not affected) .

If economic expansion is expected to increase, then demand for loanable funds should and interest rates should .

A federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an shift in the demand schedule.

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will , and the U.S. interest rates will .

If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be a of loanable funds.

If inflation and nominal interest rates move more closely together over time than they did in earlier periods, this would ____ the volatility of the real interest rate movements over time.

Due to expectations of lower inflation in the future, we would typically expect the supply of loanable funds to and the demand for loanable funds to .

Due to expectations of higher inflation in the future, we would typically expect the supply of loanable funds to and the demand for loanable funds to .

If economic expansion is expected to decrease, the demand for loanable funds should and interest rates should .

If the real interest rate is expected by a particular person to become negative, then the purchasing power of his or her savings would be , as the inflation rate is expected to be the existing nominal interest rate.

If the federal government needs to borrow additional funds, this borrowing reflects a(n) in the supply of loanable funds, and a(n) in the demand for loanable funds.

If investors shift funds from stocks into bank deposits, this the supply of loanable funds, and places pressure on interest rates.

If the federal government reduces its budget deficit, this causes a(n) in the supply of loanable funds, and a(n) in the demand for loanable funds.

If inflation turns out to be lower than expected

What is the basis of the relationship between the Fisher effect and the loanable funds theory?

Which of the following will probably not result in an increase in the business demand for loanable funds?

Canada and the U.S. are major trading partners. If Canada experiences a major increase in economic growth, it could place pressure on Canadian interest rates and pressure on U.S. interest rates.

If the real interest rate was stable over time, this would suggest that there is ____ relationship between inflation and nominal interest rate movements.

Quiz 2: Determination of Interest Rates

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S. interest rates.

If the economy weakens, there is ____ pressure on interest rates. If the Federal Reserve increases the money supply there is ____ pressure on interest rates (assume that inflationary expectations are not affected) .

If economic expansion is expected to increase, then demand for loanable funds should ____ and interest rates should ____.

A ____ federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an ____ shift in the demand schedule.

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will ____, and the U.S. interest rates will ____.

If the aggregate demand for loanable funds increases without a corresponding ____ in aggregate supply, there will be a ____ of loanable funds.

If inflation and nominal interest rates move more closely together over time than they did in earlier periods, this would ____ the volatility of the real interest rate movements over time.

Due to expectations of lower inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

Due to expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____.

If economic expansion is expected to decrease, the demand for loanable funds should ____ and interest rates should ____.

If the real interest rate is expected by a particular person to become negative, then the purchasing power of his or her savings would be ____, as the inflation rate is expected to be ____ the existing nominal interest rate.

If the federal government needs to borrow additional funds, this borrowing reflects a(n) ____ in the supply of loanable funds, and a(n) ____ in the demand for loanable funds.

If investors shift funds from stocks into bank deposits, this ____ the supply of loanable funds, and places ____ pressure on interest rates.

If the federal government reduces its budget deficit, this causes a(n) ____ in the supply of loanable funds, and a(n) ____ in the demand for loanable funds.

If inflation turns out to be lower than expected

What is the basis of the relationship between the Fisher effect and the loanable funds theory?

Which of the following will probably not result in an increase in the business demand for loanable funds?

Canada and the U.S. are major trading partners. If Canada experiences a major increase in economic growth, it could place ____ pressure on Canadian interest rates and ____ pressure on U.S. interest rates.

If the real interest rate was stable over time, this would suggest that there is ____ relationship between inflation and nominal interest rate movements.

Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities. This should cause the supply of loanable funds in the United States to and should place pressure on U.S. interest rates.

If the economy weakens, there is pressure on interest rates. If the Federal Reserve increases the money supply there is pressure on interest rates (assume that inflationary expectations are not affected) .

If economic expansion is expected to increase, then demand for loanable funds should and interest rates should .

A federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an shift in the demand schedule.

When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that the supply of loanable funds provided by Japanese investors to the United States will , and the U.S. interest rates will .

If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be a of loanable funds.

Due to expectations of lower inflation in the future, we would typically expect the supply of loanable funds to and the demand for loanable funds to .

Due to expectations of higher inflation in the future, we would typically expect the supply of loanable funds to and the demand for loanable funds to .

If economic expansion is expected to decrease, the demand for loanable funds should and interest rates should .

If the real interest rate is expected by a particular person to become negative, then the purchasing power of his or her savings would be , as the inflation rate is expected to be the existing nominal interest rate.

If the federal government needs to borrow additional funds, this borrowing reflects a(n) in the supply of loanable funds, and a(n) in the demand for loanable funds.

If investors shift funds from stocks into bank deposits, this the supply of loanable funds, and places pressure on interest rates.

If the federal government reduces its budget deficit, this causes a(n) in the supply of loanable funds, and a(n) in the demand for loanable funds.

Canada and the U.S. are major trading partners. If Canada experiences a major increase in economic growth, it could place pressure on Canadian interest rates and pressure on U.S. interest rates.