Question 1

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

Accepted Answer

With expectations of economic expansion, there will likely be an increased demand for loans for investment purposes. This increase in demand for loanable funds will drive up interest rates as lenders seek to make a higher return on their loans. Therefore, the correct answer is A: increase; increase.

Question 2

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

Accepted Answer

If economic expansion is expected to decrease, it means that there will be less demand for goods and services, resulting in a decrease in business investments. This will consequently decrease the demand for loanable funds. As the demand for loanable funds decreases, lenders will offer lower interest rates to attract borrowers, resulting in a decrease in interest rates.

Question 3

If inflation turns out to be lower than expected

Accepted Answer

If inflation turns out to be lower than expected, savers benefit as the value of their savings will not erode as much as expected. Borrowers, on the other hand, will not be affected either positively or negatively as they will still owe the same amount of money.

Question 4

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 in U.S. securities, the supply of loanable funds in the United States decreases. This is because the sale of securities by foreign investors reduces the amount of funds available for lending in the United States. As a result, the demand for loanable funds in the United States increases relative to its supply, causing interest rates in the U.S. to rise. Therefore, the correct answer is option A as it states that the pressure on U.S. interest rates will be upward.

Question 5

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

The answer of If the real interest rate is expected...

Question 6

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 government borrows additional funds, the supply of loanable funds remains unchanged as it is not a change in the overall savings rate in the economy. However, the demand for loanable funds increases as the government is now competing with other borrowers for those funds. As a result, the equilibrium interest rate will increase. Therefore, the correct answer is C - no change in supply of loanable funds and an increase in demand for loanable funds.

Question 7

If inflation is expected to decrease, then

Accepted Answer

When inflation is expected to decrease, the purchasing power of money increases, which means that the same amount of money can buy more goods and services. This leads to a decrease in demand for funds since less money is needed to purchase the same amount of goods and services. As a result, the equilibrium interest rate will decrease, as the supply of funds will exceed the demand for funds.

Question 8

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, Japanese investors are likely to keep their money in Japan to earn higher returns. This decreased supply of loanable funds will increase U.S. interest rates as the demand for funds from the United States remains the same. Therefore, the supply of loanable funds provided by Japanese investors to the United States will decrease, and the U.S. interest rates will increase.

Question 9

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 10

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 11

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 12

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 13

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

The answer of If inflation and nominal interest rates move...

Question 14

If the real interest rate was negative for a period of time, then

Accepted Answer

The answer of If the real interest rate was negative...

Question 15

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 16

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

An increase in economic growth in Canada would lead to upward pressure on Canadian interest rates because there would be more demand for credit and borrowing. This would cause investors to seek higher returns, leading to an increase in interest rates. As a result, there would then be upward pressure on U.S. interest rates because investors would search for higher returns in Canada, leading to a decrease in demand for U.S. securities and an increase in interest rates.

Question 17

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 18

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

Expectations of higher inflation can lead to an increase in interest rates. Higher interest rates can make borrowing more expensive and reduce the demand for loanable funds. Additionally, higher interest rates can make saving more attractive and increase the supply of loanable funds. Therefore, we would typically expect the supply of loanable funds to decrease and the demand for loanable funds to increase.

Question 19

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

The answer of If the real interest rate was stable...

Question 20

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

Accepted Answer

A recession typically leads to a decrease in business activities, which may result in a decrease in the demand for loanable funds. Therefore, a recession will probably not result in an increase in the business demand for loanable funds. A and B are likely to increase the demand for loanable funds by making it more profitable for businesses to undertake projects or take out loans.

Quiz 2: Determination of Interest Rates

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

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

If inflation turns out to be lower than expected

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 inflation is expected to decrease, then

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 .

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

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.

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.

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 .

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.

If the real interest rate was negative for a period of time, then

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

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 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) .

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

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

Quiz 2: Determination of Interest Rates

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

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

If inflation turns out to be lower than expected

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 inflation is expected to decrease, then

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 ____.

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

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.

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.

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 ____.

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.

If the real interest rate was negative for a period of time, then

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

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 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) .

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

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

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

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.

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 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.

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.

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 .

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

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 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) .

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 .