Question 1

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year.At the end of the year,the firm had a capital stock of $20 million.Thus its

Accepted Answer

A)  net investment was some amount but we need more information to determine the amount.
B)  net investment was $4 million for the year.
C)  gross investment was zero.
D)  net investment was -$4 million for the year.
E)  depreciation was $4 million.F) A) and D)
G) All of the above

Question 2

If a bank's net worth is negative,then the bank is

Accepted Answer

A)  liquid.
B)  insolvent.
C)  illiquid.
D)  solvent.
E)  none of the above.F) A) and E)
G) None of the above

Question 3

Refer to the figure below to answer the following questions.
  
Figure 23.2.3
-In Figure 23.2.3,if the real interest rate is constant at 6 percent and and expected profit rises,the amount of loanable funds demanded will be

Accepted Answer

A)  less than $450 billion.
B)  $450 billion.
C)  between $300 billion and $450 billion.
D)  greater than $450 billion.
E)  zero.F) C) and D)
G) A) and B)

Question 4

In the market for loanable funds,a larger government surplus leads to

Accepted Answer

A)  a higher real interest rate, and increased investment.
B)  a higher real interest rate, and decreased investment.
C)  a lower real interest rate, and increased investment.
D)  a lower real interest rate, and decreased investment.
E)  no effect on the real interest rate or investment.F) All of the above
G) A) and C)

Question 5

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the ________ demand and the supply of loanable funds is determined by the ________ supply.

Accepted Answer

A)  country's;world's
B)  country's;country's
C)  world's;country's
D)  world's;world's
E)  world's;World Bank'sF) A) and E)
G) A) and D) A

Question 6

During a recession,firms decrease their profit expectations.As a result,there is a ________ shift of the ________ loanable funds curve.

Accepted Answer

A)  rightward;supply of
B)  leftward;demand for
C)  rightward;demand for
D)  rightward, supply of
E)  leftward;demand for loanable funds curve and supply ofF) C) and E)
G) A) and E)

Question 7

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign lending ________.

Accepted Answer

A)  increases;decreases
B)  does not change;does not change
C)  does not change;increases
D)  increases;does not change
E)  does not change;decreasesF) C) and D)
G) A) and B)

Question 8

Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent.Which of the following statements is correct?

Accepted Answer

A)  The nominal interest rate is 7.5 percent and the real interest rate is 1.5 percent.
B)  The nominal interest rate is 7.5 percent and the real interest rate is 13.5 percent.
C)  The real interest rate is 7.5 percent and the nominal interest rate is 1.5 percent.
D)  The real interest rate is 6 percent and the nominal interest rate is 7.5 percent.
E)  The real interest rate is 6 percent and the nominal interest rate is -1.5 percent.F) A) and D)
G) A) and C)

Question 9

At the beginning of the year,Tom's Tubes had a capital stock of 5 tube-inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's gross investment for the year totaled

Accepted Answer

A)  1 machine.
B)  2 machines.
C)  3 machines.
D)  6 machines.
E)  8 machines.F) A) and E)
G) C) and D)

Question 10

Choose the statement that is incorrect.

Accepted Answer

A)  A financial institution can be solvent but illiquid.
B)  A firm is illiquid if it has made long-term loans with borrowed funds and is faced with a sudden demand to repay more of what is has borrowed than its available cash.
C)  Insolvency and illiquidity were at the core of a global financial meltdown in 2007-2008.
D)  A financial institution's net worth is the market value of what it has lent minus the market value of what it has borrowed.
E)  All of the above are true.F) None of the above
G) B) and D)

Question 11

According to the Ricardo-Barro effect,

Accepted Answer

A)  the government budget has no effect on the real interest rate.
B)  a government budget deficit crowds out private investment.
C)  financing government spending with taxes has a less severe effect on private investment than financing through government borrowing.
D)  All of the above.
E)  None of the above.F) A) and C)
G) B) and C)

Question 12

A firm's decision to invest in a project is based on the

Accepted Answer

A)  real interest rate and expected total revenue.
B)  nominal interest rate and expected total revenue.
C)  nominal interest rate and the expected profit.
D)  real interest rate and the expected profit.
E)  expected future income, wealth, and default risk.F) A) and D)
G) A) and C)

Question 13

Crowding out leads to all of the following EXCEPT

Accepted Answer

A)  a higher real interest rate.
B)  a decrease in investment.
C)  a smaller quantity of capital in the future.
D)  a decrease in private saving.
E)  crowding out leads to all of the above.F) A) and D)
G) A) and E)

Question 14

All of the following are sources of loanable funds EXCEPT

Accepted Answer

A)  business investment.
B)  private saving.
C)  government budget surplus.
D)  international borrowing.
E)  none of the above.F) C) and D)
G) A) and C) A

Question 15

The greater a household's ________ the less is its saving.

Accepted Answer

A)  return from saving
B)  wealth
C)  disposable income
D)  expected future profit
E)  all of the aboveF) A) and B)
G) All of the above

Question 16

A government budget deficit ________ the demand for loanable funds and ________ investment.

Accepted Answer

A)  increases;increases
B)  increases;decreases
C)  decreases;increases
D)  decreases;decreases
E)  increases;rises or falls depending on the change in the supply of loanable fundsF) B) and D)
G) D) and E) B

Question 17

Which of the following is FALSE about saving?

Accepted Answer

A)  Saving adds to wealth.
B)  Income left after paying taxes can either be consumed or saved.
C)  Saving equals wealth minus consumption expenditure.
D)  Saving is the source of funds used to finance investment.
E)  Saving supplies funds in loan markets, bond markets, and stock markets.F) D) and E)
G) C) and D)

Question 18

Technological progress that increases expected profit shifts the demand for loanable funds curve

Accepted Answer

A)  leftward and decreases the real interest rate.
B)  rightward and increases the real interest rate.
C)  rightward and decreases the real interest rate.
D)  leftward and increases the real interest rate.
E)  rightward and the supply of loanable funds curve leftward.F) C) and E)
G) C) and D)

Question 19

Use the table below to answer the following question.
Table 23.3.1
Data from Northland
 
-Refer to Table 23.3.1.Table 23.3.1 shows the market for loanable funds in Northland.The government budget is balanced.If the government moves from a balanced budget to a surplus of $20 billion,the new equilibrium has a real interest rate of ________ percent and quantity of loanable funds traded equal to ________.

Accepted Answer

A)  6.5;$110 billion
B)  6.5;$90 billion
C)  5.5;$90 billion
D)  5.5;$110 billion
E)  6;$120 billionF) D) and E)
G) B) and C)

Question 20

A decrease in the real interest rate leads to a ________ the demand for loanable funds curve,and a decrease in expected profit leads to a ________ the demand for loanable funds curve.

Accepted Answer

A)  rightward shift of;leftward shift of
B)  movement down along;movement up along
C)  rightward shift of;movement up along
D)  movement down along;leftward shift of
E)  movement down along;rightward shift ofF) A) and D)
G) A) and B)

Exam 23: Finance, Saving, and Investment

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year.At the end of the year,the firm had a capital stock of $20 million.Thus its

Correct Answer
verified

If a bank's net worth is negative,then the bank is

Correct Answer
verified

Refer to the figure below to answer the following questions. Figure 23.2.3 -In Figure 23.2.3,if the real interest rate is constant at 6 percent and and expected profit rises,the amount of loanable funds demanded will be

Correct Answer
verified

In the market for loanable funds,a larger government surplus leads to

Correct Answer
verified

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the demand and the supply of loanable funds is determined by the supply.

Correct Answer
verified
A

During a recession,firms decrease their profit expectations.As a result,there is a shift of the loanable funds curve.

Correct Answer
verified

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country and the country's foreign lending .

Correct Answer
verified

Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent.Which of the following statements is correct?

Correct Answer
verified

At the beginning of the year,Tom's Tubes had a capital stock of 5 tube-inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's gross investment for the year totaled

Correct Answer
verified

Choose the statement that is incorrect.

Correct Answer
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According to the Ricardo-Barro effect,

Correct Answer
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A firm's decision to invest in a project is based on the

Correct Answer
verified

Crowding out leads to all of the following EXCEPT

Correct Answer
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All of the following are sources of loanable funds EXCEPT

Correct Answer
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A

The greater a household's ________ the less is its saving.

Correct Answer
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A government budget deficit the demand for loanable funds and investment.

Correct Answer
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B

Which of the following is FALSE about saving?

Correct Answer
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Technological progress that increases expected profit shifts the demand for loanable funds curve

Correct Answer
verified

Correct Answer
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A decrease in the real interest rate leads to a the demand for loanable funds curve,and a decrease in expected profit leads to a the demand for loanable funds curve.

Correct Answer
verified

Exam 23: Finance, Saving, and Investment

The Acme Stereo Company had a capital stock of $24 million at the beginning of the year.At the end of the year,the firm had a capital stock of $20 million.Thus its

Correct AnswerverifiedShow Answer

If a bank's net worth is negative,then the bank is

Correct AnswerverifiedShow Answer

Refer to the figure below to answer the following questions. Figure 23.2.3 -In Figure 23.2.3,if the real interest rate is constant at 6 percent and and expected profit rises,the amount of loanable funds demanded will be

Correct AnswerverifiedShow Answer

In the market for loanable funds,a larger government surplus leads to

Correct AnswerverifiedShow Answer

In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the ________ demand and the supply of loanable funds is determined by the ________ supply.

Correct AnswerverifiedA

During a recession,firms decrease their profit expectations.As a result,there is a ________ shift of the ________ loanable funds curve.

Correct AnswerverifiedShow Answer

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign lending ________.

Correct AnswerverifiedShow Answer

Suppose that you took out a $1,000 loan in January and had to pay $75 in annual interest.During the year,inflation was 6 percent.Which of the following statements is correct?

Correct AnswerverifiedShow Answer

At the beginning of the year,Tom's Tubes had a capital stock of 5 tube-inflating machines.During the year,Tom scrapped 2 old machines and purchased 3 new machines.Tom's gross investment for the year totaled

Correct AnswerverifiedShow Answer

Choose the statement that is incorrect.

Correct AnswerverifiedShow Answer

According to the Ricardo-Barro effect,

Correct AnswerverifiedShow Answer

A firm's decision to invest in a project is based on the

Correct AnswerverifiedShow Answer

Crowding out leads to all of the following EXCEPT

Correct AnswerverifiedShow Answer

All of the following are sources of loanable funds EXCEPT

Correct AnswerverifiedA

The greater a household's ________ the less is its saving.

Correct AnswerverifiedShow Answer

A government budget deficit ________ the demand for loanable funds and ________ investment.

Correct AnswerverifiedB

Which of the following is FALSE about saving?

Correct AnswerverifiedShow Answer

Technological progress that increases expected profit shifts the demand for loanable funds curve

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A decrease in the real interest rate leads to a ________ the demand for loanable funds curve,and a decrease in expected profit leads to a ________ the demand for loanable funds curve.

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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In an individual economy that is integrated into the global market,the demand for loanable funds is determined by the demand and the supply of loanable funds is determined by the supply.

Correct Answer
verified
A

During a recession,firms decrease their profit expectations.As a result,there is a shift of the loanable funds curve.

Correct Answer
verified

A very small country is a net foreign lender and its supply of loanable funds increases.As a result,the equilibrium quantity of loanable funds used in the country and the country's foreign lending .

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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A

Correct Answer
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A government budget deficit the demand for loanable funds and investment.

Correct Answer
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B

Correct Answer
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Correct Answer
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Correct Answer
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A decrease in the real interest rate leads to a the demand for loanable funds curve,and a decrease in expected profit leads to a the demand for loanable funds curve.

Correct Answer
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