Question 1

The quantity of loanable funds supplied by _____ is _____ related to the real interest rate.

Accepted Answer

A)   savers; negatively
B)   savers; positively
C)   borrowers; negatively
D)   borrowers; positivelyE) All of the above
F) A) and C)

Question 2

Which of the following is the LEAST liquid?

Accepted Answer

A)   money in a savings account
B)   a Picasso painting
C)   a U.S. Treasury bond
D)   $100 in cashE) B) and D)
F) A) and B)

Question 3

The supply curve for loanable funds slopes the way it does because if interest rates are low, fewer projects will have a rate of return high enough to justify the investment.

Accepted Answer

A) True 
 B)False

Question 4

The primary purpose of financial markets and institutions is to help transfer funds from lenders to borrowers.

Accepted Answer

A) True 
 B)False

Question 5

_____ are a higher-risk investment than _____.

Accepted Answer

A)   Blue-chip stocks; growth stocks
B)   Growth stocks; blue-chip stocks
C)   U.S. Treasury securities; blue-chip stocks
D)   Certificates of deposit; growth stocksE) All of the above
F) B) and D)

Question 6

Because of the compounding effect, a large loan balance becomes smaller.

Accepted Answer

A) True 
 B)False

Question 7

_____ are near money.

Accepted Answer

A)   Money market deposit accounts
B)   American Express cards
C)   Demand deposits
D)   Traveler's checksE) A) and D)
F) A) and C)

Question 8

Roth Individual Retirement Accounts (IRAs)  are taxed:

Accepted Answer

A)   when you make contributions and again when you make withdrawals.
B)   only when you make contributions.
C)   only when you make withdrawals.
D)   Roth IRAs are never taxed.E) A) and B)
F) A) and C)

Question 9

Cash is counted in the money supply as a part of:

Accepted Answer

A)   M1 only.
B)   M2 only.
C)   both M1 and M2.
D)   neither M1 or M2.E) A) and D)
F) A) and B)

Question 10

Demand deposits are included in M1 but not M2.

Accepted Answer

A) True 
 B)False

Question 11

A bond issued 10 years ago had a face value of $2,000, a coupon rate of 5%, and a yield of 6% when sold last month in the secondary bond market. At what price did the bond sell in the secondary market?

Accepted Answer

A)   $1,666.67
B)   $2,120.00
C)   $1,880.00
D)   $2,220.00E) A) and B)
F) B) and D)

Question 12

Which of these will cause the demand for loanable funds curve to shift leftward?

Accepted Answer

A)   an improvement in firms' expectations about the economy
B)   an increase in demand for new homes
C)   an end to a program that provides investment tax credits
D)   an increase in the government deficitE) A) and C)
F) C) and D)

Question 13

The return on investment of an asset largely depends on the risk of the asset, with lower risk assets generally earning a higher return.

Accepted Answer

A) True 
 B)False

Question 14

Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _____ loanable funds shifts _____.

Accepted Answer

A)   supply of; left
B)   supply of; right
C)   demand for; left
D)   demand for; rightE) A) and D)
F) B) and C)

Question 15

Jody purchases a stock from her employer, Acme Corporation. This is an example of _____ finance.

Accepted Answer

A)   unregulated
B)   indirect
C)   direct
D)   investmentE) B) and C)
F) C) and D)

Question 16

If interest rates can provide an incentive not to spend money today, then, as interest rates rise:

Accepted Answer

A)   there is a movement upward along the supply curve for loanable funds.
B)   the supply curve for loanable funds shifts to the left.
C)   there is a movement downward along the supply curve for loanable funds.
D)   the supply curve for loanable funds shifts to the right.E) A) and B)
F) A) and C)

Question 17

The most common type of short-term debt is college loans.

Accepted Answer

A) True 
 B)False

Question 18

Suppose Mary saves enough funds for a down payment on a house. When she buys her home, she withdraws the savings to make the down payment and borrows $200,000 on a mortgage loan. Which statement accurately describes Mary's interactions with her bank?

Accepted Answer

A)   Mary is the intermediary or connection between the bank and her house.
B)   Mary's house is the intermediary between Mary and the bank.
C)   Mary is supplying loan funds and cash to the home owner and demanding savings from her bank.
D)   Mary goes from being a supplier to demanding loanable funds with the bank acting as an intermediary.E) A) and B)
F) B) and D)

Question 19

Which of these is NOT one of the criteria for a commodity to serve as money?

Accepted Answer

A)   The commodity must be durable.
B)   The commodity must be accepted by many people as money.
C)   The commodity must be issued as currency or coin.
D)   The commodity must be standardized.E) A) and B)
F) None of the above

Question 20

(Figure: Market for Loanable Funds 2)  Based on the graph, if business taxes increase, the demand for loanable funds curve will shift from _____ to _____ and the new equilibrium will be at point _____, holding supply constant at S0. 0.   A)  D0; D1; c B)  D0; D1; b C)  D1; D0; a D)  D1; D0; d" class="answers-bank-image d-inline" rel="preload" >

Accepted Answer

A)   D0; D1; c
B)   D0; D1; b
C)   D1; D0; a
D)   D1; D0; dE) A) and B)
F) All of the above

Exam 11: Saving, Investment, and the Financial System

The return on investment of an asset largely depends on the risk of the asset, with lower risk assets generally earning a higher return.

Correct AnswerverifiedShow Answer

The supply curve for loanable funds slopes the way it does because if interest rates are low, fewer projects will have a rate of return high enough to justify the investment.

Correct AnswerverifiedShow Answer

Because of the compounding effect, a large loan balance becomes smaller.

Correct AnswerverifiedShow Answer

Which of the following is the LEAST liquid?

Correct AnswerverifiedShow Answer

(Figure: Market for Loanable Funds 2) Based on the graph, if business taxes increase, the demand for loanable funds curve will shift from _____ to _____ and the new equilibrium will be at point _____, holding supply constant at S0.

Correct AnswerverifiedShow Answer

_____ are near money.

Correct AnswerverifiedShow Answer

Suppose Mary saves enough funds for a down payment on a house. When she buys her home, she withdraws the savings to make the down payment and borrows $200,000 on a mortgage loan. Which statement accurately describes Mary's interactions with her bank?

Correct AnswerverifiedShow Answer

The most common type of short-term debt is college loans.

Correct AnswerverifiedShow Answer

The primary purpose of financial markets and institutions is to help transfer funds from lenders to borrowers.

Correct AnswerverifiedShow Answer

Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _____ loanable funds shifts _____.

Correct AnswerverifiedShow Answer

Which of these is NOT one of the criteria for a commodity to serve as money?

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The quantity of loanable funds supplied by _____ is _____ related to the real interest rate.

Correct AnswerverifiedShow Answer

Cash is counted in the money supply as a part of:

Correct AnswerverifiedShow Answer

If interest rates can provide an incentive not to spend money today, then, as interest rates rise:

Correct AnswerverifiedShow Answer

_____ are a higher-risk investment than _____.

Correct AnswerverifiedShow Answer

Roth Individual Retirement Accounts (IRAs) are taxed:

Correct AnswerverifiedShow Answer

Which of these will cause the demand for loanable funds curve to shift leftward?

Correct AnswerverifiedShow Answer

A bond issued 10 years ago had a face value of $2,000, a coupon rate of 5%, and a yield of 6% when sold last month in the secondary bond market. At what price did the bond sell in the secondary market?

Correct AnswerverifiedShow Answer

Jody purchases a stock from her employer, Acme Corporation. This is an example of _____ finance.

Correct AnswerverifiedShow Answer

Demand deposits are included in M1 but not M2.

Correct AnswerverifiedShow Answer

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(Figure: Market for Loanable Funds 2) Based on the graph, if business taxes increase, the demand for loanable funds curve will shift from ___ to _ and the new equilibrium will be at point ___, holding supply constant at S₀.

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Suppose the government implements a policy reducing the rewards earned by savers. In this case, the _ loanable funds shifts _.

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The quantity of loanable funds supplied by _ is _ related to the real interest rate.

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_ are a higher-risk investment than _.

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