Question 1

A decrease in the real interest rate will

Accepted Answer

A decrease in the real interest rate reduces the cost of borrowing, which increases the incentive to invest and consume. As a result, both consumption and investment increase.

Question 2

The demand for loanable funds has a ________ slope because the lower the interest rate, the ________ the number of profitable investment projects, and the ________ the quantity of loanable funds demanded.

Accepted Answer

The demand for loanable funds has a negative slope because, at lower interest rates, more investment projects become profitable, leading to an increase in the quantity of loanable funds demanded.

Question 3

Using the market for loanable funds, which of the following has the potential to raise the real interest rate?

Accepted Answer

An increase in the demand for loanable funds would shift the demand curve to the right, causing the equilibrium interest rate to increase. This is because borrowers are willing to pay more to access the limited supply of funds available.

Question 4

Equilibrium in the loanable funds market determines

Accepted Answer

Equilibrium in the loanable funds market determines the real interest rate, which is the interest rate adjusted for inflation. The nominal interest rate is the stated interest rate without adjusting for inflation. The current, expected, and overnight interest rates may be influenced by a variety of factors and are not necessarily determined solely by equilibrium in the loanable funds market.

Question 5

Which of the following is most likely to lead to an increase in the interest rate, based on the market for loanable funds?

Accepted Answer

When baby boomers retire and reduce their savings, the supply of loanable funds decreases, leading to an increase in interest rates.

Question 6

The federal budget deficit can be reduced by

Accepted Answer

Raising taxes would increase revenue for the government, thereby reducing the budget deficit. This is because the government can use the additional revenue to pay off debts or spend it on reducing the deficit. Other options such as raising government spending, transfer payments, or reducing consumption would increase the deficit. Higher interest rates may reduce government spending and discourage people from borrowing, but this would not be enough to reduce the deficit significantly.

Question 7

Which of the following is not a way to reduce the government's budget deficit

Accepted Answer

Issuing government bonds is a way for the government to borrow money to finance its deficit, but it does not reduce the deficit itself. In fact, issuing bonds adds to the government's debt, which can lead to higher interest payments in the future. Selling government assets, raising taxes, and reducing government spending are all ways to reduce the deficit.

Question 8

If technological change increases the profitability of new investment for firms, then the ________ curve for loanable funds will shift to the ________ and the equilibrium real interest rate will ________.

Accepted Answer

When technological change increases the profitability of new investment for firms, the demand for loanable funds to finance these investments increases, shifting the demand curve to the right. This increased demand raises the equilibrium real interest rate.

Question 9

Figure 6.6  Alt text for Figure 6.6: In figure 6.6, a graph shows loanable funds market in equilibrium.
Long description for Figure 6.6: The x-axis is labelled, quantity of loanable funds (millions of dollars), ranging from 0 to 180 in increments of 30.The y-axis is labelled real interest rate, ranging from 0 to 6% in increments of 1.2 intersecting lines are shown.A line labelled D begins at the top left corner and slopes down toward the end of the x-axis.Another line labelled S begins near the origin and slopes upward to the top right corner.5 points are plotted on these two lines as (90, 5), (90, 3), (120, 4), (150, 5), (150, 3).These points are connected to their respective coordinates on the x-axis and y-axis using dotted lines.
-Refer to Figure 6.6.The loanable funds market is in equilibrium, as shown in the figure above.An increase in the supply of loanable funds could result in which of the following combinations of the real interest rate and quantity of loanable funds at a new equilibrium?

Accepted Answer

Based on the graph, an increase in the supply of loanable funds would shift the supply curve to the right. This would result in a decrease in the equilibrium real interest rate and an increase in the equilibrium quantity of loanable funds. Based on the options given, the only combination that fits this description is C, where the real interest rate decreases to 3% and the quantity of loanable funds increases to $150 million. The other options either have no change in the real interest rate or don't have the correct quantity of loanable funds at the new equilibrium. Option E has a lower real interest rate but a higher quantity of loanable funds, which is not possible with a rightward shift in the supply curve.

Question 10

Which of the following changes would be most beneficial to a saver?

Accepted Answer

The answer of Which of the following changes would be...

Question 11

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

Accepted Answer

The demand for loanable funds is primarily driven by firms or businesses who require funds for investment in new projects, expansion of existing businesses or for working capital. Government and households may also borrow money, but firms are the primary drivers of the demand for loanable funds. Banks and foreigners are not the ones who demand loanable funds, although banks are intermediaries that channel the savings of households to borrowers such as firms and governments.

Question 12

The supply of loanable funds has a ________ slope because the greater the interest rate, the ________ the reward to saving, and the ________ the quantity of loanable funds supplied.

Accepted Answer

The supply of loanable funds has a positive slope because as the interest rate increases, the reward for saving increases, leading to a greater quantity of loanable funds supplied. Higher interest rates make saving more attractive, encouraging more people to save and thus increasing the supply of loanable funds.

Question 13

Figure 6.6  Alt text for Figure 6.6: In figure 6.6, a graph shows loanable funds market in equilibrium.
Long description for Figure 6.6: The x-axis is labelled, quantity of loanable funds (millions of dollars), ranging from 0 to 180 in increments of 30.The y-axis is labelled real interest rate, ranging from 0 to 6% in increments of 1.2 intersecting lines are shown.A line labelled D begins at the top left corner and slopes down toward the end of the x-axis.Another line labelled S begins near the origin and slopes upward to the top right corner.5 points are plotted on these two lines as (90, 5), (90, 3), (120, 4), (150, 5), (150, 3).These points are connected to their respective coordinates on the x-axis and y-axis using dotted lines.
-Refer to Figure 6.6.The loanable funds market is in equilibrium, as shown in the figure above.As a result of an increase in the government budget deficit, the ________ for loanable funds will ________, thereby ________ the equilibrium real interest rate and ________ the equilibrium quantity of loanable funds.

Accepted Answer

An increase in the government budget deficit shifts the supply curve (S) in the loanable funds market to the left, causing the supply for loanable funds to fall. This decrease in supply will increase the equilibrium real interest rate and decrease the equilibrium quantity of loanable funds. Choice D correctly identifies the shift in the supply curve and the resulting changes in equilibrium price and quantity.

Question 14

The budget deficit is defined as

Accepted Answer

The budget deficit occurs when a government's expenditures (G + TR, where G is government spending and TR is transfer payments) exceed its tax revenues (T). Therefore, a budget deficit is defined as T - (G + TR), and it is negative because expenditures exceed revenues.

Question 15

Ebenezer Scrooge's (the main character in Charles Dickens' A Christmas Carol)change in behaviour from miser to spender might actually be detrimental to the economy because

Accepted Answer

Scrooge's miserly saving contributed to investment goods which can help to increase productivity and economic growth in the long run. His change in behavior from a saver to a spender could cause a shift in resources towards consumption goods instead, which could lead to a decrease in long-term economic growth.

Question 16

If technological change increases the profitability of new investments for firms, then the ________ curve for loanable funds will shift to the ________.

Accepted Answer

When technological change increases the profitability of new investments, firms are more inclined to borrow funds to invest in these new technologies, thus increasing the demand for loanable funds. This scenario leads to a rightward shift in the demand curve for loanable funds.

Question 17

An increase in the real interest rate results in which of the following?

Accepted Answer

The answer of An increase in the real interest rate...

Question 18

Because ________ in the government budget deficit increase the real interest rate, budget deficits can ________ firm investment.

Accepted Answer

An increase in the government budget deficit increases the demand for loanable funds, which pushes up the real interest rate. This increase in the real interest rate then leads to a decrease in firm investment, as it becomes more expensive to borrow funds for investment projects. Therefore, the correct option is D.

Question 19

An increase in the real interest rate does which of the following?

Accepted Answer

The answer of An increase in the real interest rate...

Question 20

An increase in public saving has what impact on the market for loanable funds?

Accepted Answer

An increase in public saving increases the supply of loanable funds in the market. This is because the public is saving more, which means they have more money available to lend out. As a result, the supply curve shifts to the right in the loanable funds market, leading to a decrease in the equilibrium interest rate and an increase in the quantity of funds lent out.

Quiz 6: Economic Growth, The Financial System, and Business Cycles

A decrease in the real interest rate will

The demand for loanable funds has a slope because the lower the interest rate, the the number of profitable investment projects, and the the quantity of loanable funds demanded.

Using the market for loanable funds, which of the following has the potential to raise the real interest rate?

Equilibrium in the loanable funds market determines

Which of the following is most likely to lead to an increase in the interest rate, based on the market for loanable funds?

The federal budget deficit can be reduced by

Which of the following is not a way to reduce the government's budget deficit

If technological change increases the profitability of new investment for firms, then the curve for loanable funds will shift to the and the equilibrium real interest rate will .

Which of the following changes would be most beneficial to a saver?

The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects.

The supply of loanable funds has a slope because the greater the interest rate, the the reward to saving, and the the quantity of loanable funds supplied.

The budget deficit is defined as

Ebenezer Scrooge's (the main character in Charles Dickens' A Christmas Carol) change in behaviour from miser to spender might actually be detrimental to the economy because

If technological change increases the profitability of new investments for firms, then the curve for loanable funds will shift to the .

An increase in the real interest rate results in which of the following?

Because in the government budget deficit increase the real interest rate, budget deficits can firm investment.

An increase in the real interest rate does which of the following?

An increase in public saving has what impact on the market for loanable funds?