Question 1

After taking out a one-year loan with an annual interest rate of 10 percent, Toben pays $3,300 back to the bank. The principal of the loan was _______ and the interest payment was _______.
A) $3,000; $300
B) $3,300; $300
C) $300; $3,300
D) $300; $3,000

Accepted Answer

Let P be the principal of the loan. Then, the interest payment is 0.1P (since the interest rate is 10%). Therefore, we have:

P + 0.1P = 3300
1.1P = 3300
P = 3000

Thus, the principal of the loan was $3,000 and the interest payment was $300.

Question 2

John can take out a one-year loan of $1,000 at an annual interest rate of 10 percent. After calculating his return to be $200, John knows he will _______ if he takes out the loan.
A) make $100
B) lose $100
C) make $200
D) lose $200

Accepted Answer

John will make $100 because the interest on the loan is $100 (10% of $1,000), and his return is $200, leaving him with a net gain of $100.

Question 3

The principal of a loan is the:
A) original amount of the loan.
B) set of rules and conditions borrowers agree to when taking out a loan.
C) set of rules and conditions savers agree to when agreeing to let someone borrow their money.
D) initial credit check conducted by the lender.

Accepted Answer

The principal of a loan is the original amount of money borrowed, which is separate from any added interest or fees.

Question 4

If Riko takes out a one-year loan of $2,000 with a 10 percent annual interest rate, the price she will pay for borrowing is:
A) $2,000.
B) $2,200.
C) $200.
D) $2,400.

Accepted Answer

The price Riko pays for borrowing is the interest, which is 10% of $2,000, equaling $200.

Question 5

If Howard takes out a one-year loan of $400 with a 5 percent annual interest rate, he will pay back a total of:
A) $400.
B) $440.
C) $420.
D) $20.

Accepted Answer

The annual interest is 5 percent, so the total interest for the year is 0.05 x $400 = $20. Therefore, Howard will have to pay back $420 ($400 loan + $20 interest).

Question 6

If citizens expect to bear most of the burden for their own health care and retirement costs in the future, then we would expect the _______ loanable funds to be _______ than it would be if retirement benefits were expected.
A) demand for; greater
B) demand for; lesser
C) supply of; greater
D) supply; lesser

Accepted Answer

When citizens expect to bear most of the burden for their own health care and retirement costs, they are likely to save more to prepare for these expenses. This increases the supply of loanable funds in the economy.

Question 7

The graph shown displays the market for loanable funds in an economy.  If the quantity people want to save increases, at any given interest rate, a new equilibrium would occur at a _______ interest rate and a _______ equilibrium quantity of funds saved and invested.
A) lower; higher
B) higher; higher
C) lower; constant
D) higher; constant

Accepted Answer

If the quantity people want to save increases, the supply of loanable funds will increase, causing the supply curve to shift to the right. This will result in a new equilibrium where the interest rate is lower and the equilibrium quantity of funds saved and invested is higher. Choice A represents this scenario correctly.

Question 8

The graph shown displays the market for loanable funds in an economy.  Suppose investors become more optimistic that the economy will do well over the next decade. How will the market for loanable funds be affected?
A) Supply will shift to the right, from S1 to S2
B) Supply will shift to the left, from S2 to S1
C) Demand will shift to the right, from D1 to D2
D) Demand will shift to the left, from D2 to D1

Accepted Answer

The answer of The graph shown displays the market for...

Question 9

After taking out a one-year loan with an annual interest rate of 5 percent, Pranav pays $2,100 back to the bank. The principal of the loan was _______ and the interest payment was _______.
A) $2,000; $100
B) $2,100; $100
C) $100; $2,100
D) $100; $2,000

Accepted Answer

The principal of the loan is the amount borrowed before interest. With a 5% annual interest rate, the interest payment would be 5% of the principal. If Pranav pays back $2,100, this includes both the principal and the interest. To find the principal, we can set up the equation: Principal + 0.05(Principal) = $2,100. Solving for the principal gives $2,000, and the interest is 5% of $2,000, which is $100.

Question 10

If the rate of return is lower than the cost of borrowing:
A) an investor will lose money after paying back the loan.
B) an investor should make the investment.
C) a borrower will make money after taking out the loan.
D) banks will offer more loans.

Accepted Answer

If the rate of return is lower than the cost of borrowing, it means that the investor will have to pay back the loan with interest that is higher than the return on the investment. This results in a loss for the investor. Therefore, it is not advisable to make the investment in this situation.

Question 11

In the market for loanable funds, the law of supply shows that more people will choose to _______ at _______ interest rates.
A) borrow; lower
B) save; lower
C) save; higher
D) borrow; higher

Accepted Answer

The law of supply states that as prices (in this case, interest rates) increase, suppliers (in this case, savers) will be more willing and able to supply more of the good (in this case, loanable funds). Therefore, more people will choose to save at higher interest rates, indicating choice C as the correct answer.

Question 12

In the market for loanable funds, the demand curve:
A) represents savers.
B) is downward-sloping.
C) shows that more people will choose to save at higher interest rates.
D) represents the amount of debt-backed securities the government is willing to provide at each interest rate.

Accepted Answer

The demand curve in the market for loanable funds is downward-sloping because it represents the amount of borrowing that firms and individuals are willing and able to undertake at different interest rates. As interest rates increase, borrowing becomes more expensive, and fewer people are willing to take out loans or invest in projects that require financing. This results in a decrease in the quantity of loanable funds demanded, which is reflected in the downward slope of the demand curve.

Question 13

If the rate of return is higher than the cost of borrowing, the:
A) investor will lose money after paying back the loan.
B) investor will make money after paying back the loan.
C) saver will make less money than the borrower.
D) borrower will make more money than the saver.

Accepted Answer

If the rate of return is higher than the cost of borrowing, the investor will make money after paying back the loan. This is because the return on their investment is more than the cost of borrowing, so they will have more money than they started with even after paying back the borrowed funds.

Question 14

In the market for loanable funds, the supply curve:
A) represents savers.
B) is downward-sloping.
C) shows that more people will choose to save at lower interest rates.
D) represents borrowers.

Accepted Answer

The supply curve in the market for loanable funds represents savers who are willing to lend their money in exchange for a return in the form of interest. The higher the interest rate offered, the more savers will be willing to supply funds, resulting in an upward-sloping supply curve.

Question 15

Studies show that _______ households tend to save more of their income and that ____________ households save more out of tax cuts than others do.
A) richer; poorer
B) richer; richer
C) poorer; richer
D) poorer; poorer

Accepted Answer

Studies have consistently shown that higher-income or wealthier households tend to save more of their income compared to lower-income or poorer households. Additionally, research has found that when tax cuts are implemented, higher-income households tend to save more of the extra income they receive as a result of the tax cuts.

Question 16

Miguel takes out a one-year loan of $5,000 with a 10 percent annual interest rate. What is the principal?
A) $5,000
B) $5,500
C) $500
D) $1,000

Accepted Answer

The principal of a loan is the initial amount borrowed. In this case, Miguel takes out a loan of $5,000, so the principal is also $5,000.

Question 17

Aisha can take out a one-year loan of $3,000 at an annual interest rate of 10 percent. After calculating her return to be $200, Aisha knows she will _______ if she takes out the loan.
A) lose $100
B) make $200
C) make $100
D) lose $200

Accepted Answer

The interest on the loan for one year at 10 percent would be $300 (10% of $3,000). Since Aisha's return is $200, she will end up losing $100 because the cost of the loan exceeds her return by $100.

Question 18

Sarah can take out a one-year loan of $5,000 at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah knows she will _______ if she takes out the loan.
A) make $450
B) lose $450
C) make $50
D) lose $50

Accepted Answer

The interest on the loan for one year at 10% of $5,000 is $500. Since Sarah's return is $450, she will lose $50 ($500 - $450).

Question 19

In the market for loanable funds, the rate of return describes the:
A) expected profit a project will generate per dollar invested.
B) cost of borrowing.
C) interest rate on loans.
D) frequency with which reinvestment can occur.

Accepted Answer

The rate of return in the context of the market for loanable funds primarily refers to the expected profit a project will generate for each dollar invested, which influences investment decisions and demand for loans.

Question 20

The fact that U.S. citizens expect to receive retirement benefits through Social Security and Medicare causes the _______ loanable funds to be _______ than it would be if these programs did not exist.
A) demand for; greater
B) demand for; lesser
C) supply of; greater
D) supply of; lesser

Accepted Answer

The expectation of receiving retirement benefits reduces the need for personal savings, thus decreasing the supply of loanable funds.

Quiz 14: Thebasics of Finance

After taking out a one-year loan with an annual interest rate of 10 percent, Toben pays $3,300 back to the bank. The principal of the loan was _ and the interest payment was _.

John can take out a one-year loan of $1,000 at an annual interest rate of 10 percent. After calculating his return to be $200, John knows he will _______ if he takes out the loan.

The principal of a loan is the:

If Riko takes out a one-year loan of $2,000 with a 10 percent annual interest rate, the price she will pay for borrowing is:

If Howard takes out a one-year loan of $400 with a 5 percent annual interest rate, he will pay back a total of:

If citizens expect to bear most of the burden for their own health care and retirement costs in the future, then we would expect the _ loanable funds to be _ than it would be if retirement benefits were expected.

The graph shown displays the market for loanable funds in an economy. If the quantity people want to save increases, at any given interest rate, a new equilibrium would occur at a _ interest rate and a _ equilibrium quantity of funds saved and invested.

The graph shown displays the market for loanable funds in an economy. Suppose investors become more optimistic that the economy will do well over the next decade. How will the market for loanable funds be affected?

After taking out a one-year loan with an annual interest rate of 5 percent, Pranav pays $2,100 back to the bank. The principal of the loan was _ and the interest payment was _.

If the rate of return is lower than the cost of borrowing:

In the market for loanable funds, the law of supply shows that more people will choose to _ at _ interest rates.

In the market for loanable funds, the demand curve:

If the rate of return is higher than the cost of borrowing, the:

In the market for loanable funds, the supply curve:

Studies show that _ households tend to save more of their income and that ______ households save more out of tax cuts than others do.

Miguel takes out a one-year loan of $5,000 with a 10 percent annual interest rate. What is the principal?

Aisha can take out a one-year loan of $3,000 at an annual interest rate of 10 percent. After calculating her return to be $200, Aisha knows she will _______ if she takes out the loan.

Sarah can take out a one-year loan of $5,000 at an annual interest rate of 10 percent. After calculating her return to be $450, Sarah knows she will _______ if she takes out the loan.

In the market for loanable funds, the rate of return describes the:

The fact that U.S. citizens expect to receive retirement benefits through Social Security and Medicare causes the _ loanable funds to be _ than it would be if these programs did not exist.