Question 1

Draw a correctly labeled loanable funds graph that shows what happens to real interest rates for each of the subsequent situations:

a. The government begins providing health care subsidies for all Americans.

b. Private investors become less optimistic about the economy.

c. All overseas conflicts are ended and American troops return home.

Question 2

Which of the following is true when the government is deficit spending?

I. The government becomes a borrower in the loanable funds market.

II. Real interest rates rise.

III. Private investment spending is crowded out.

IV. The total amount of borrowing is decreased.

I and II only.

I and III only.

I, II and III only.

I, III and IV only.

I, II, III and IV.

Question 3

An increase in savings by Americans

a. would most likely increase the supply of loanable funds.
b. would most likely increase the interest rate.
c. would most likely decrease the demand for loanable funds.
d. would most likely decrease the supply of loanable funds.
e. would most likely decrease the quantity demanded of loanable funds.

Question 4

One of the reasons the demand curve for the loanable funds graph is down-sloping is that more investors are willing to supply funds

a. when interest rates are high.
b. when the interest rate is low, the quantity demanded of loanable funds will be less.
c. when the interest rate is low, the quantity demanded of loanable funds will be greater.
d. when the interest rate is high, the quantity supplied of loanable funds will be less.
e. when the interest rate is high, the quantity demanded of loanable funds will be greater.

Question 5

If investors sell their stocks and increase their money holdings due to a bad economy then demand for loanable funds will increase.

a. demand for loanable funds will decrease.
b. supply of loanable funds will increase.
c. supply of loanable funds will decrease.
d. quantity demanded of loanable funds will decrease.

Question 6

Given the loanable funds market illustrated above, which of the following is most likely to be true of quantity demanded and quantity supplied of loanable funds, if the government imposes an effective interest floor of 12%?

a. Quantity Demanded / Quantity Supplied
b. Decrease / Decrease
c. Decrease / Increase
d. Increase / No change
e. Increase / Decrease
f. Increase / Increase

Question 7

If interest rates are high, business investment spending decreases.

true

false

Question 8

If the supply of loanable funds increases, what will happen to real interest rates and the international value of the U.S. dollar (USD)?

a. Real Interest Rates / International Value of USD
b. Increase / Increase
c. Increase / Decrease
d. Decrease / No Change
e. Decrease / Decrease
f. Decrease / Increase

Question 9

If the demand for loanable funds increases, what will happen to real interest rates and the international value of the U.S. dollar (USD)?

a.Real Interest Rates / International Value of USD
b. Increase / Increase
c. Increase / Decrease
d. Decrease / No Change
e. Decrease / Decrease
f. Decrease / Increase

Question 10

Given the loanable funds market illustrated above, which of the following is most likely to be true of quantity demanded and quantity supplied of loanable funds if the government imposes an effective interest ceiling of 6%?

a. Quantity Demanded / Quantity Supplied
b. Decrease / Decrease
c. Decrease / Increase
d. Increase / No change
e. Increase / Decrease
f. Increase / Increase

Question 11

A business will borrow money to complete a project when

a.the interest rate is greater than the rate of return on the project.
b.the interest rate is less than the rate of return on the project.
c. the interest paid is more than the cost of the project.
d. the interest rate is less than the cost of the project.
e. the interest rate is variable over the course of the project.