Question

1) The slope of the supply of loanable funds curve represents the

Select one:

a. positive relation between the real interest rate and investment.

b. positive relation between the real interest rate and saving.

c. positive relation between the nominal interest rate and investment.

d. positive relation between the nominal interest rate and saving.

2) In Imaginaryland, the supply curve of loanable funds is Qs = 1000*r + 2, the demand curve of loanable funds is Qd = -10*r + 100. Suppose that the current nominal interest rate is 10%, and the percentage change of GDP deflator from the last year is 4%. What are the equilibrium level of loanable funds and the current levels of supply and demand of the loanable funds respectively?

Select one:

a. 99.03; 62; 99.4

b. 98; 142; 98.6

c. 99.03; 102; 99

d. 98; 58; 100.6

3)Which of the following are characteristics of bonds?

i. Bonds are certificates of indebtedness.

ii. Bonds are purchased through auctions.

iii. Bonds can be resold in secondary bond markets.

iv. Bonds represent ownership of a corporation.

Select one:

a. only i, ii, and iii

b. only i, iii, and iv

c. all four

d. only ii, iii, and iv.

4)Which of the following is NOT true about mutual funds?

Select one:

a. Mutual funds typically hold a wide assortment of stocks and/or bonds.

b. Mutual funds typically accept deposits and allow depositors to write checks on their deposits.

c. Mutual funds allow people with limited funds to diversify.

d. Mutual funds pool together the money of many different savers.

5)What would happen in the market for loanable funds if the government were to decrease the tax on interest income?

Select one:

a. There would be no change in the amount of loanable funds borrowed.

b. There would be an increase in the amount of loanable funds borrowed.

c. There would be a reduction in the amount of loanable funds borrowed.

d. The change in loanable funds borrowed would be ambiguous.

6) In a small closed economy investment is $10 billion and private saving is $15 billion. What are public saving and national saving, respectively?

Select one:

a. $5 billion and $5 billion

b. $25 billion and $10 billion

c. None of the other answers.

d. -$5 billion and $10 billion

7)

Which of the following shows assets in order from least to greatest risk?

Select one:

a. bond; stock portfolio; cash; single stock

b. cash; bond; stock portfolio; single stock

c. bond; cash; single stock; stock portfolio

d. cash; single stock; bond; stock portfolio

8)What was the US 10-year treasury rate in November 2017?

Select one:

a. 4.26%

b. 2.60%

c. 0.31%

d. 2.35%

Answer 1

1. Option b. positive relation between the real interest rate and saving.

Explanation: The supply curve for loanable funds shows the different quantities of supply of loanable funds at different real interest rates. Savers are concerned about real interest rate rather than the nominal interest rate. The higher the real interest rate, the higher is the saving and the higher is the supply of loanable funds. The slope of the supply curve for loanable funds shows a positive relationship between real interest rate and savings.