Question

1. Which would cause an increase in interest rates in credit markets?
   a.   An increase in the supply of consumer saving
   b.   A decrease in business demand for credit
   c.   An increase in consumer demand for credit
   d.   An increase in the supply of business saving

2. As interest rates decrease, the:
   a.   Cost of current consumption relative to future consumption remains the same
   b.   Cost of current relative to future consumption increases
   c.   Desire of many individuals to save increases
   d.   Cost of current relative to future consumption decreases

3. Suppose a firm is considering the purchase of a machine which when used will increase its total revenues by $10,000 for the year. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should:
   a.   Not be undertaken because the rate of return is 7 percent less than the interest rate
   b.   Be undertaken because the rate of return is 7 percent greater than the interest rate
   c.   Be undertaken because the rate of return is 5 percent greater than the interest rate
   d.   Be undertaken because the rate of return is 2 percent greater than the interest rate

Answer 1

Answer 1

c.   An increase in consumer demand for credit

when consumer demand for more of credit the interest rates would generally rise .

Answer 2

b. Cost of current relative to future consumption increases

Since the interest rates decreases people try to more consume at the current time till the interest rates are low .

Answer 3

c.   Be undertaken because the rate of return is 5 percent greater than the interest rate

other options would not get the right answer for the question