1. What would most likely happen in the market for loanable funds if the government were to decrease the tax rate on interest income?

a.

The supply of and demand for loanable funds would shift to the right.

b.

The supply of and demand for loanable funds would shift to the left.

c.

The supply of loanable funds would shift to the right, and the demand for loanable funds would shift to the left.

d.

The supply of loanable funds would shift to the right, and the demand for loanable funds will remain unchanged.

2. What will happen to the interest on a bond as the bond's term increases?

a.

The bond will pay less interest because it has less risk.

b.

The bond will pay less interest because it has more risk.

c.

The bond will pay more interest because it has more risk.

d.

The bond will pay more interest because it has less risk.

3. What is most likely to happen if Canada increases its budget deficit?

a.

Private saving will decrease and so shift the supply of loanable funds left.

b.

Investment will decrease and so shift the demand for loanable funds left.

c.

Public saving will decrease and so shift the supply of loanable funds left.

d.

Private saving will increase and so shift the supply of loanable funds to the right.

4. What does the principle of monetary neutrality imply?

a.

An increase in the money supply will increase real GDP and the price level.

b.

An increase in the money supply will increase real GDP, but not the price level.

c.

An increase in the money supply will increase the price level, but not real GDP.

d.

An increase in the money supply will increase neither the price level nor real GDP.

5. Tashonna puts money in a savings account at her bank, earning 4.5 percent. One year later, she takes her money out and notes that while her money was earning interest, prices rose 2.5 percent. How has the amount of goods Tashonna can buy changed one year later?

a.

Tashonna can buy 7 percent more goods.

b.

Tashonna can buy 7 percent less goods.

c.

Tashonna can buy 2 percent more goods.

d.

Tashonna can buy 2 percent less goods.

6. Suppose a bank has a 6 percent reserve ratio, $4000 in deposits, and it loans out all it can, given the reserve ratio. Which of the following describes the bank's assets?

a.

It has $800 in reserves and $16,000 in loans.

b.

It has $240 in reserves and $3760 in loans.

c.

It has $240in reserves and $4000 in loans.

d.

It has $800 in reserves and $3200 in loans.

7. Cole puts money into an account. One year later, he sees that he has 4 percent more dollars and that his money will buy 3 percent more goods. Which of the following is consistent with these facts?

a.

The nominal interest rate was 4 percent, and the inflation rate was 1 percent.

b.

The nominal interest rate was 4 percent, and the inflation rate was 7 percent.

c.

The nominal interest rate was 7 percent, and the inflation rate was -7 percent.

d.

The nominal interest rate was 1 percent, and the inflation rate was -1 percent.

8. If Parliament increased the tax rate on interest income, what would most likely happen to investment and saving?

a.

Investment would increase, and saving would decrease.

b.

Investment would decrease, and saving would increase.

c.

Investment and saving would both increase.

d.

Investment and saving would both decrease.

e.

None of the above.