1. The real interest rate is defined as:

A. inflation minus the nominal interest rate.

B. the nominal interest rate plus inflation.

C. the nominal interest rate divided by inflation.

D. the nominal interest rate minus inflation.

2. The loanable funds theory states that ________ is(are) determined by the ________ for loans.

A. real interest rates; demand

B. nominal interest rates; supply and demand

C. real interest rates; supply and demand

D. inflation; supply

3. In the loanable funds theory, ________ is the ________ of a loan.

A. the nominal interest rate; price

B. inflation; cost

C. the price; interest rate

D. the real interest rate; price

4. Which of the following are assumptions of the loanable funds theory?

I. There is only one type of loan.

II. The interest rate is zero.

III. Banks are the intermediary between savers and investors.

A. I only

B. II only

C. III only

D. I and III

5. Which of the following are assumptions of the loanable funds theory?

I. There are many types of loans.

II. There is only one interest rate.

III. Savers loan to investors via banks.

A. I only

B. II only

C. III only

D. I and III