Question 1

If the demand for loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

Accepted Answer

If the demand for loanable funds decreases, ceteris paribus, lenders will reduce the interest rates they offer to induce borrowers to take out loans. This, in turn, will decrease the quantity of loanable funds exchanged, as savers and investors will be less willing to supply their money at lower interest rates. Therefore, a decrease in demand for loanable funds will lead to a decrease in the quantity of loanable funds exchanged.

Question 2

If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time,interest rates will:

Accepted Answer

When both supply and demand for loanable funds decrease simultaneously, the effect on interest rates is indeterminate without knowing the relative magnitudes of the changes in supply and demand. Interest rates could increase, decrease, or remain the same depending on which effect is stronger.

Question 3

At an 8% interest rate,the quantity of savings is $250 billion.What would the quantity of savings be if the interest rate falls to 5%?

Accepted Answer

We can use the simple interest formula to solve this problem:

Simple Interest = (Principal x Rate x Time) / 100

Let's assume that the time period for both interest rates is the same, say, one year.

At 8% interest rate, with a principal of $250 billion, the simple interest would be:

(250 x 8 x 1) / 100 = $20 billion

Therefore, the total amount of savings after one year would be:

Principal + Simple Interest = 250 + 20 = $270 billion

Now, if the interest rate falls to 5%, but the principal and time period remain the same, the simple interest would be:

(250 x 5 x 1) / 100 = $12.5 billion

Thus, the total amount of savings after one year at 5% interest rate would be:

Principal + Simple Interest = 250 + 12.5 = $262.5 billion

Hence, the answer is A) $190 billion, as it is not among the options given and is thus incorrect.

Question 4

If the supply of loanable funds increases,ceteris paribus,the quantity of loanable funds exchanged will:

Accepted Answer

An increase in the supply of loanable funds will lead to a decrease in the interest rate, which will in turn increase the quantity of loanable funds exchanged. Therefore, the best choice is A, which represents an increase in the quantity of loanable funds exchanged.

Question 5

If the supply of loanable funds increases and the demand for loanable funds increases at the same time,interest rates will:

Accepted Answer

The increase in both the supply of loanable funds and the demand for loanable funds create opposite effects on interest rates. The increase in supply puts downward pressure on interest rates, while the increase in demand puts upward pressure on interest rates. Depending on the magnitude of each change, interest rates may increase, decrease, or remain the same. Therefore, the best choice is D.

Question 6

An increase in the supply of saving curve will cause the equilibrium quantity of borrowing to:

Accepted Answer

An increase in the supply of saving curve will decrease the interest rate, making borrowing cheaper. As a result, the quantity of borrowing demanded will increase, leading to an increase in equilibrium quantity of borrowing.

Question 7

If the recent financial crisis raises awareness about the dangers of not saving,leading to an increase in overall savings rates across the country,the loanable funds market will experience an increase in the _____ loanable funds and _____ in equilibrium interest rates.

Accepted Answer

An increase in overall savings rates increases the supply of loanable funds in the market, leading to a decrease in equilibrium interest rates as more funds are available for borrowing.

Question 8

What effect will an investment tax credit have on interest rates and the quantity of savings?

Accepted Answer

An investment tax credit makes investment more attractive, leading to increased demand for loanable funds. This increased demand raises interest rates, which in turn encourages more people to save, thus increasing the quantity of savings.

Question 9

If the supply of loanable funds decreases and the demand for loanable funds increases at the same time,interest rates will:

Accepted Answer

When the supply of loanable funds decreases and the demand for loanable funds increases at the same time, there will be a shortage of loanable funds which leads to an increase in interest rates. This is because lenders will want to charge higher interest rates to make their funds available to borrowers due to increased demand resulting in a higher cost of borrowing.

Question 10

As a result of an increase in the supply of savings:

Accepted Answer

An increase in the supply of savings in the economy typically leads to a decrease in interest rates because there is more money available for lending. Lower interest rates make borrowing more attractive, leading to an increase in the amount of borrowing.

Question 11

An increase in the supply of saving curve will cause the equilibrium quantity of saving to:

Accepted Answer

An increase in the supply of saving curve will cause a decrease in the interest rate. As the interest rate decreases, quantity of saving demanded by borrowers will increase, which will cause an increase in the equilibrium quantity of saving.

Question 12

If an increase in the expected future returns on investment leads to an increase in the current level of investment projects undertaken,the loanable funds market will experience an increase in the _____ loanable funds and _____ in equilibrium interest rates.

Accepted Answer

When expected future returns on investment increase, firms are more likely to undertake new investment projects, leading to an increase in the demand for loanable funds. This higher demand, with supply remaining constant, typically results in an increase in equilibrium interest rates.

Question 13

An increase in the demand for borrowing will cause the equilibrium interest rate to:

Accepted Answer

An increase in demand for borrowing means more people are seeking loans, which creates a scarcity of available funds for lending. This shortage of supply results in an increase in the equilibrium interest rate to balance the demand and supply of loans.

Question 14

If the government decides to drastically increase spending (and by extension the budget deficit)during an economic recession,it will increase the _____ loanable funds and _____ equilibrium interest rates.

Accepted Answer

When the government increases spending during a recession, it typically finances this by borrowing more, which increases the demand for loanable funds. As demand increases, the price of borrowing (interest rates) also increases.

Question 15

If the demand for loanable funds increases,ceteris paribus,the quantity of loanable funds exchanged will:

Accepted Answer

If the demand for loanable funds increases, the equilibrium interest rate will increase, which will incentivize lenders to supply more loanable funds. Therefore, the quantity of loanable funds exchanged will increase.

Question 16

If the supply of loanable funds increases and the demand for loanable funds decreases at the same time,interest rates will:

Accepted Answer

When the supply of loanable funds increases, it means that lenders have more funds available to lend. On the other hand, if the demand for loanable funds decreases, borrowers require less money to invest or spend. The excess supply of loanable funds relative to demand will lead to a decrease in interest rates. Therefore, if the supply of loanable funds increases and the demand for loanable funds decreases at the same time, interest rates will decrease.

Question 17

If investors become less optimistic about the economy,which of the following best describes behavior in the loanable funds market?

Accepted Answer

When investors become less optimistic about the economy, they are less likely to borrow money for investment purposes, leading to a decrease in the demand for loanable funds. This decrease in demand, all else being equal, results in a lower equilibrium interest rate.

Question 18

An increase in the supply of saving curve will cause the equilibrium interest rate to:

Accepted Answer

An increase in the supply of saving curve means that there is more saving available in the economy, which will push interest rates down as borrowers will have access to more funds at lower rates. Therefore, the equilibrium interest rate will decrease.

Question 19

An investment tax credit results in:

Accepted Answer

An investment tax credit increases the attractiveness of investments for firms, leading to an increased demand for loanable funds to finance these investments. This increased demand, in turn, pushes up the interest rate.

Question 20

If the supply of loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

Accepted Answer

When the supply of loanable funds decreases, the cost of loanable funds will increase due to the increased demand for the limited supply. As a result, borrowers will be less likely to seek out loans and lenders will be less willing to lend, which will lead to a decrease in the quantity of loanable funds exchanged.

Quiz 9: Saving,investment,and the Financial System

If the demand for loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time,interest rates will:

At an 8% interest rate,the quantity of savings is $250 billion.What would the quantity of savings be if the interest rate falls to 5%?

If the supply of loanable funds increases,ceteris paribus,the quantity of loanable funds exchanged will:

If the supply of loanable funds increases and the demand for loanable funds increases at the same time,interest rates will:

An increase in the supply of saving curve will cause the equilibrium quantity of borrowing to:

If the recent financial crisis raises awareness about the dangers of not saving,leading to an increase in overall savings rates across the country,the loanable funds market will experience an increase in the _ loanable funds and _ in equilibrium interest rates.

What effect will an investment tax credit have on interest rates and the quantity of savings?

If the supply of loanable funds decreases and the demand for loanable funds increases at the same time,interest rates will:

As a result of an increase in the supply of savings:

An increase in the supply of saving curve will cause the equilibrium quantity of saving to:

If an increase in the expected future returns on investment leads to an increase in the current level of investment projects undertaken,the loanable funds market will experience an increase in the _ loanable funds and _ in equilibrium interest rates.

An increase in the demand for borrowing will cause the equilibrium interest rate to:

If the government decides to drastically increase spending (and by extension the budget deficit) during an economic recession,it will increase the _ loanable funds and _ equilibrium interest rates.

If the demand for loanable funds increases,ceteris paribus,the quantity of loanable funds exchanged will:

If the supply of loanable funds increases and the demand for loanable funds decreases at the same time,interest rates will:

If investors become less optimistic about the economy,which of the following best describes behavior in the loanable funds market?

An increase in the supply of saving curve will cause the equilibrium interest rate to:

An investment tax credit results in:

If the supply of loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

Quiz 9: Saving,investment,and the Financial System

If the demand for loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

If the supply of loanable funds decreases and the demand for loanable funds decreases at the same time,interest rates will:

At an 8% interest rate,the quantity of savings is $250 billion.What would the quantity of savings be if the interest rate falls to 5%?

If the supply of loanable funds increases,ceteris paribus,the quantity of loanable funds exchanged will:

If the supply of loanable funds increases and the demand for loanable funds increases at the same time,interest rates will:

An increase in the supply of saving curve will cause the equilibrium quantity of borrowing to:

If the recent financial crisis raises awareness about the dangers of not saving,leading to an increase in overall savings rates across the country,the loanable funds market will experience an increase in the _____ loanable funds and _____ in equilibrium interest rates.

What effect will an investment tax credit have on interest rates and the quantity of savings?

If the supply of loanable funds decreases and the demand for loanable funds increases at the same time,interest rates will:

As a result of an increase in the supply of savings:

An increase in the supply of saving curve will cause the equilibrium quantity of saving to:

If an increase in the expected future returns on investment leads to an increase in the current level of investment projects undertaken,the loanable funds market will experience an increase in the _____ loanable funds and _____ in equilibrium interest rates.

An increase in the demand for borrowing will cause the equilibrium interest rate to:

If the government decides to drastically increase spending (and by extension the budget deficit) during an economic recession,it will increase the _____ loanable funds and _____ equilibrium interest rates.

If the demand for loanable funds increases,ceteris paribus,the quantity of loanable funds exchanged will:

If the supply of loanable funds increases and the demand for loanable funds decreases at the same time,interest rates will:

If investors become less optimistic about the economy,which of the following best describes behavior in the loanable funds market?

An increase in the supply of saving curve will cause the equilibrium interest rate to:

An investment tax credit results in:

If the supply of loanable funds decreases,ceteris paribus,the quantity of loanable funds exchanged will:

If the recent financial crisis raises awareness about the dangers of not saving,leading to an increase in overall savings rates across the country,the loanable funds market will experience an increase in the _ loanable funds and _ in equilibrium interest rates.

If an increase in the expected future returns on investment leads to an increase in the current level of investment projects undertaken,the loanable funds market will experience an increase in the _ loanable funds and _ in equilibrium interest rates.

If the government decides to drastically increase spending (and by extension the budget deficit) during an economic recession,it will increase the _ loanable funds and _ equilibrium interest rates.