QUESTION 1

1. The demand curve for loanable funds by businesses is

a.downward sloping because more investment projects are profitable the lower the interest rate.

b.downward sloping because of the law of diminishing marginal utility.

c.horizontal because they can borrow as much as they want at the current interest rate.

d.of an indeterminate slope because business investment decisions tend to be related more to "animal spirits" than to rational decision making.

1 points

QUESTION 2

1. When interest rates rise, households tend to consume _______ and save _______.

a.more; more

b.more; less

c.less; more

d.less; less

1 points

QUESTION 3

1. When there is excess demand for loanable funds, interest rates will rise in response.

a.True

b.False

1 points

QUESTION 4

1. Funds borrowed and saved are brought into equilibrium through adjustments in ______________.

a.inflation

b.the money supply

c.deposits

d.interest rates

1 points

QUESTION 5

1. John takes out a loan that increases his purchasing power by 5% over one year. If inflation is 2%, what is the real interest rate?

a.7%

b.3%

c.5%

d.-3%

1 points

QUESTION 6

1. Businesses demand loanable funds because they

a.have deficits to cover.

b.prefer to purchase capital goods in the current year.

c.make investments that they believe will increase productivity and profitability.

d.prefer earlier consumption to later consumption.

1 points

QUESTION 7

1. The supply curve of loanable funds slopes up because

a.people will give up more current consumption and increase savings only if they are rewarded even more in the future.

b.of the law of diminishing marginal returns.

c.of the income effect of interest rates.

d.saving increases with income.

1 points

QUESTION 8

1. What might cause a household to save less in response to an increase in the nominal interest rate?

a.A rise in inflation greater than the rise in the nominal interest rate

b.An increase in the real interest rate equal to the rise in the nominal interest rate

c.a decrease in inflation equal to the increase in the nominal interest rate

d.an offsetting decrease in the discount rate

1 points

QUESTION 9

1. The nominal rate of interest

a.Is adjusted for inflation.

b.Is the stated rate of interest.

c.Is expressed as an after-tax percentage.

d.All of the above.

1 points

QUESTION 10

1. John takes out a loan that increases his purchasing power by 8% over one year. If inflation is 5%, what is the nominal interest rate?

a.13%

b.3%

c.8%

d.-3%

1 points