Question 1

If foreign entities save less and governments run more deficits, we would correctly say that:

Accepted Answer

The answer of If foreign entities save less and governments...

Question 2

If real rates were higher than nominal rates in 2009, the implication is that:

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The answer of If real rates were higher than nominal...

Question 3

We could best describe:

Accepted Answer

The real rate of interest is the inflation-adjusted rate of interest. It is calculated by subtracting the rate of inflation from the nominal interest rate.

Question 4

If household wealth falls and governments run fewer deficits, we would correctly say that:

Accepted Answer

Household wealth falling would decrease the supply of loanable funds, and governments running fewer deficits would decrease the demand for loanable funds. Therefore, we can say that the new equilibrium quantity of loanable funds would decrease, but we cannot tell if the new equilibrium interest rate would be higher or lower than the original. Therefore, option A is the best choice.

Question 5

You borrow some amount of money for five years at a fixed rate of 4%. For the first three years, inflation is 3%, and for the last two years, deflation is 3%. Based on this information:

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The answer of You borrow some amount of money for...

Question 6

Refer to the following graph to answer the next  questions: 
-Assuming the figure represents the market for loanable funds, which of the following would represent an increase in household wealth?

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The answer of Refer to the following graph to answer...

Question 7

If household wealth rises and capital becomes less productive, we would correctly say that:

Accepted Answer

The answer of If household wealth rises and capital becomes...

Question 8

If foreign entities save more and businesses become more optimistic about the future, we would correctly say that:

Accepted Answer

Foreign entities saving more increases the supply of loanable funds, pushing the equilibrium interest rate down and increasing the equilibrium quantity of loanable funds. Similarly, if businesses become more optimistic about the future, they would consume less of their cash reserves and would have more available to borrow, which increases the supply of loanable funds, pushing the equilibrium interest rate down and increasing the equilibrium quantity of loanable funds. Therefore, the new equilibrium quantity of loanable funds would increase, but we cannot determine the direction of the change in the equilibrium interest rate.

Question 9

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to rise?

Accepted Answer

The answer of Which combination of events could have caused...

Question 10

Refer to the following graph to answer the next  questions: 
-Assuming the figure represents the market for loanable funds, which of the following would represent a cut in corporate tax rates, causing business owners and managers to become more optimistic?

Accepted Answer

A cut in corporate tax rates would increase the incentive for businesses to invest in capital projects, which would shift the supply of loanable funds to the right (from line 2 to line 3) and decrease interest rates, making borrowing more attractive for both consumers and businesses. Movement from B to A or A to B would represent a change in the quantity demanded of loanable funds due to an increase or decrease in the expected return on investment, not a change in business optimism. A shift from line 1 to line 4 or from line 3 to line 2 would represent a change in the demand for loanable funds due to changes in consumer or government spending, not a change in business optimism.

Question 11

Wealth increases in the United States because the value of the stock market increases; if all else is equal, this would cause:

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The answer of Wealth increases in the United States because...

Question 12

Refer to the following graph to answer the next  questions: 
-Assuming the figure represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy?

Accepted Answer

The answer of Refer to the following graph to answer...

Question 13

By 1981:

Accepted Answer

In 1981, interest rates were about 15%. This was due to the Federal Reserve under Paul Volcker raising interest rates in an effort to combat inflation. The high interest rates, along with other economic policies, eventually helped to bring inflation under control but also had a significant impact on the economy and on individuals with loans or mortgages.

Question 14

Inflation reached its peak (of at least 14%) in the late 1970s/early 1980s. If this statement is true, then:

Accepted Answer

Inflation erodes the purchasing power of money, leading to a decrease in the real value of loans. As a result, lenders will charge a higher nominal interest rate to compensate for the expected loss in real value. Therefore, it is certain that the nominal rate of interest was greater than the real rate during a period of high inflation, such as the late 1970s/early 1980s.

Question 15

Refer to the following graph to answer the next  questions: 
-Assuming the figure represents the market for loanable funds, which of the following would represent the government running a larger budget deficit?

Accepted Answer

The answer of Refer to the following graph to answer...

Question 16

By 2012:

Accepted Answer

Around 2012, there was a period of low interest rates due to the recession and the Federal Reserve’s policies to stimulate the economy. Many interest rates, especially for savings accounts and short-term loans, were below 1%.

Question 17

As income and wealth rise, we would expect:

Accepted Answer

As income and wealth rise, individuals tend to save some of the extra income or wealth they have. The increase in income or wealth provides a cushion for future financial needs, and individuals tend to save for future expenses such as retirement or unexpected emergencies. Therefore, savings tend to increase as income and wealth rise.

Question 18

Which combination of events could have caused the equilibrium interest rate to rise and the equilibrium quantity of loanable funds (both borrowed and lent) to fall?

Accepted Answer

A baby boom would increase the demand for loanable funds as people seek to invest in business ventures, buy homes, and make other large purchases. However, if people simultaneously have higher time preferences (meaning they value current consumption over future consumption), they will be less willing to save and lend out their funds. This reduction in lending would reduce the supply of loanable funds and cause the equilibrium interest rate to rise. Additionally, the lower quantity of loanable funds available would mean that borrowers would have to compete more heavily for the available funds, driving up the interest rate even further.

Question 19

Refer to the following graph to answer the next  questions: 
-Assuming the figure represents the market for loanable funds, which of the following would represent a decrease in time preferences (i.e., people are more patient)?

Accepted Answer

The answer of Refer to the following graph to answer...

Question 20

Assume deflation is occurring in a nation; the implication(s):

Accepted Answer

Deflation means that the general price level is falling, meaning that inflation is negative. If nominal interest rates remain positive, but inflation is negative, then the real interest rate (which adjusts for inflation) must be higher than the nominal rate. Therefore, the implication is that the real rate of interest exceeds the nominal rate of interest.

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

If foreign entities save less and governments run more deficits, we would correctly say that:

If real rates were higher than nominal rates in 2009, the implication is that:

We could best describe:

If household wealth falls and governments run fewer deficits, we would correctly say that:

You borrow some amount of money for five years at a fixed rate of 4%. For the first three years, inflation is 3%, and for the last two years, deflation is 3%. Based on this information:

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent an increase in household wealth?

If household wealth rises and capital becomes less productive, we would correctly say that:

If foreign entities save more and businesses become more optimistic about the future, we would correctly say that:

Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to rise?

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent a cut in corporate tax rates, causing business owners and managers to become more optimistic?

Wealth increases in the United States because the value of the stock market increases; if all else is equal, this would cause:

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent a general economic collapse in the United States, causing foreigners to become fearful about the U.S. economy?

By 1981:

Inflation reached its peak (of at least 14%) in the late 1970s/early 1980s. If this statement is true, then:

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent the government running a larger budget deficit?

By 2012:

As income and wealth rise, we would expect:

Which combination of events could have caused the equilibrium interest rate to rise and the equilibrium quantity of loanable funds (both borrowed and lent) to fall?

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, which of the following would represent a decrease in time preferences (i.e., people are more patient) ?

Assume deflation is occurring in a nation; the implication(s) :