Question 1

Suppose government expenditures on goods and services increase,transfers are unchanged,and taxes rise by less than the increase in expenditures.These changes in the government's budget cause

Accepted Answer

An increase in government expenditures will lead to an increase in the demand for loanable funds, causing an increase in the equilibrium interest rate. At the same time, the decrease in disposable income resulting from the increased taxes will lead to a decrease in saving, causing a decrease in the supply of loanable funds, and a decrease in the equilibrium quantity of loanable funds. Transfers being unchanged will not have any direct effect on the market for loanable funds. Therefore, the correct choice is C.

Question 2

Other things the same,a government budget deficit

Accepted Answer

A government budget deficit reduces public saving because the government is spending more than it is earning. This also reduces national saving, which is the sum of private and public saving.

Question 3

Suppose a country had a smaller increase in debt in 2011 than it had in 2010.Then other things the same,we would expect

Accepted Answer

When a country has a smaller increase in its debt, it implies that the government is borrowing less, which may lead to lower interest rates. Lower interest rates would encourage greater investment because borrowing cost is reduced, thus making it more attractive for businesses to invest in the country. Therefore, we can expect a lower interest rate and greater investment in 2011 than in 2010.

Question 4

A larger budget surplus

Accepted Answer

A larger budget surplus increases the supply of loanable funds, which reduces the interest rate and encourages more investment.

Question 5

Suppose the government deficit increases,but the interest rate remains the same.Which of the following things might have happened simultaneously to keep interest rates the same?

Accepted Answer

If consumers decide to decrease consumption and work more, they may save more, increasing the supply of loanable funds, which can offset the increased demand for funds due to the government deficit, keeping interest rates unchanged.

Question 6

Other things the same,if the government increases transfer payments to households,then the effect of this on the government's budget

Accepted Answer

The answer of Other things the same,if the government increases...

Question 7

A larger budget deficit

Accepted Answer

A larger budget deficit can lead to an increase in demand for funds, which in turn can raise interest rates. This increase in interest rates can reduce investment as borrowing becomes more expensive. Therefore, a larger budget deficit raises the interest rate and reduces investment.

Question 8

Crowding out occurs when

Accepted Answer

Crowding out occurs when an increase in government spending leads to a budget deficit, which in turn causes interest rates to rise, making it more expensive for private sector borrowers to invest. This leads to a decline in investment, resulting in crowding out.

Question 9

Suppose the government ran a budget surplus in 2010 and a larger surplus in 2011.The loanable funds model would predict that,as a result of the increase in the surplus,

Accepted Answer

A budget surplus reduces government debt and increases the supply of loanable funds, leading to lower interest rates.

Question 10

An increase in the budget deficit would cause a

Accepted Answer

An increase in the budget deficit means the government spends more than it earns, causing a greater demand for loanable funds. As a result, there will be a shortage of loanable funds at the original interest rate, and lenders will be willing to loan money only if interest rates rise. Therefore, there will be a shortage of loanable funds at the original interest rate, which will lead to rising interest rates.

Question 11

Bolivia had a smaller budget deficit in 2003 than in 2002.Other things the same,we would expect this reduction in the budget deficit to have

Accepted Answer

A reduction in the budget deficit generally leads to a decrease in the supply of government bonds, which can reduce interest rates. Additionally, a reduction in the budget deficit may enhance investor confidence in the government's fiscal situation, which can lead to greater investment. Therefore, we would expect a reduction in the budget deficit to lead to a decrease in interest rates and an increase in investment.

Question 12

Suppose government expenditures on goods and services and net taxes both decrease,and expenditures fall by more than net taxes.The effects of these changes on the budget deficit cause

Accepted Answer

When government expenditures decrease, the demand for loanable funds decreases, causing the equilibrium interest rate to fall. When net taxes decrease, the supply of loanable funds decreases, causing the equilibrium quantity of loanable funds to rise.

Question 13

When the government runs a budget deficit,

Accepted Answer

When the government runs a budget deficit, it borrows from the financial markets, which can lead to higher interest rates. This crowding out effect reduces the funds available for private investment, making investment lower than it would be if the budget were balanced.

Question 14

A budget deficit

Accepted Answer

The answer of A budget deficit
...

Question 15

If Canada goes from a large budget deficit to a small budget deficit,it will

Accepted Answer

When Canada goes from a large budget deficit to a small budget deficit, it means that the government is increasing its revenue or decreasing its spending. This results in an increase in public saving, which increases the supply of loanable funds in the economy. As a result, the supply of loanable funds shifts rightward, leading to a decrease in the interest rate and an increase in investment in the economy. This is because with the increased supply of loanable funds, the cost of borrowing decreases which encourages private entities to borrow more for investment projects.

Question 16

A decrease in the budget deficit

Accepted Answer

A decrease in the budget deficit means the government is spending less money than it is receiving in revenue. This often leads to a decrease in interest rates, which can stimulate investment spending by making it cheaper for businesses to borrow money. Therefore, a decrease in the budget deficit often leads to a rise in investment spending.

Question 17

Suppose the Congress and president decreased the maximum annual contributions limits to retirement accounts and at the same time reduced the budget deficit.What would happen to the interest rate?

Accepted Answer

The answer of Suppose the Congress and president decreased the...

Question 18

Crowding out occurs when investment declines because

Accepted Answer

Crowding out occurs when the government borrows money to finance a budget deficit, which increases the demand for credit, pushing up interest rates. This leads to a decrease in private investment because borrowing becomes more expensive, crowding out private borrowers. Therefore, the correct choice is A, a budget deficit makes interest rates rise, which leads to crowding out.

Question 19

If the government currently has a budget deficit,then

Accepted Answer

A budget deficit occurs when a government's expenditures exceed its revenue from taxes and other sources. As a result, the government must borrow money to finance its operations, which increases its debt over time. Therefore, all of the given options are correct.

Question 20

In 2009,the U.S.government's budget deficit increased substantially.Other things the same,this means the

Accepted Answer

An increase in the budget deficit means that the government is borrowing more money, which increases the demand for loanable funds. This would shift the supply of loanable funds to the left as there is a higher demand for funds and a reduced supply of funds available for lending. Therefore, the correct choice is B.

Quiz 13: Saving Investment and the Financial System: The Market for Loanable Funds