5) The required rate of return for a corporate project would be _____ if interest rates were lower. As such, we expect corporations to demand _____ loanable funds when interest rates are low.

a. greater; less

b. lower; more

c. lower; less

d. greater; more

e. zero; no

6) The US federal government has an _____ demand for loanable funds. If the US budget deficit decreases, we expect that the US federal government demand for loanable funds would ____.

a. interest inelastic; decrease

b. interest elastic; decrease

c. infinite; disappear

d. interest elastic; increase

e. interest inelastic; increase

7) Which of the following is likely to cause a decrease in the equilibrium U.S. interest rate, other things being equal?

a. a decrease in savings by foreign savers

b. an increase in inflation

c. economic projections that show weak future demand

d. a decrease in savings by U.S. households

e. a declining unemployment rate

8) The US has exhibited very low inflation in recent years. Given a 1% rate of inflation, what is the real rate of return on an investment with a 2% nominal rate?

9) In 2007 and 2008, the nation of Zimbabwe faced severe hyperinflation. By late 2008, the estimated inflation was more than one trillion percent (thats 1,000,000,000,000) per year.[1] Assuming an inflation rate of one trillion percent, what is the real rate of return on an investment with a two trillion percent nominal return?

10) Does the Fisher Effect approximation ( i E(INF) + i_R ) provide a good estimate for the real rate of return in problem 8? How about problem 9?

11) When investors become very greedy, borrow a lot of money, and use that to buy penny stocks, this ____ the supply of loanable funds, and places ____ pressure on interest rates.

a. increases; upward

b. increases; downward

c. decreases; downward

d. decreases; upward

e. does not impact; does not place

[1] See table 1 of Hanke and Kwok (2009) http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2009/5/cj29n2-8.pdf