1. In determining whether to borrow funds, firms compare the rate of return they expect to make on an investment with:-
A. the interest rate they must pay to borrow the necessary funds.
B. the revenue expected from the investment.
C. the initial cost of the investment.
D. the total amount of profit they expect to make from the investment.

2. Which of the following factors determines the supply of loanable funds?
A. the number of financial intermediaries available.
B. changes in the interest rate, which cause firms to undertake more of fewer investment projects
C. the quantity of stocks and bonds issued by firms
D. the willingness of household and governments to save.

3. Holding all else constant, a federal government budget deficit will
A. increase the supply of loanable funds and decrease the equilibrium real interest rate.
B. decrease the supply of loanable funds and decrease the equilibrium real interest rate.
C. decrease the supply of loadable funds and increase the equilibrium real interest rate.
D. increase the demand for loanable funds and increase the equilibrium real interest rate.