61) Intel’s capital at the end of the year equals Intel’s capital at the beginning of the year
A) minus its stock dividends.
B) plus net investment.
C) minus depreciation.
D) plus gross investment.
E) plus depreciation.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
62) Economists use the term “inancial markets” to mean the markets in which
A) irms purchase their physical capital.
B) irms supply their goods and services.
C) households supply their labor services.
D) irms get the funds that they use to buy physical capital.
E) the government borrows to fund any budget surplus.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
63) When a student uses a credit card to buy an iPod, the student is
A) borrowing in the bond market.
B) lending in the bond market.
C) lending in the loan market.
D) borrowing in the loan market.
E) lending in the stock market.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
21
64) Which of the following is NOT a inancial institution?
A) an insurance company
B) a pension fund
C) Freddie Mac
D) a commercial bank
E) None of the above is correct because they are all inancial institutions.
Skill: Level 1: Deinition
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
65) If the market value of what it has lent is less than the market value of what it has
borrowed, a inancial institution’s net worth is ________ and it is ________.
A) negative; illiquid but not necessarily insolvent
B) negative; insolvent but not necessarily illiquid
C) positive; illiquid and insolvent
D) negative; illiquid and insolvent
E) positive; insolvent but not necessarily illiquid
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Revised
AACSB: Relective thinking
66) A bond’s price is $80 and the bond pays $8 in interest every year. The bond’s interest
rate is ________.
A) 8 percent
B) 10 percent
C) 4 percent
D) 80 percent
E) None of the above are correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.1
Status: Old
AACSB: Relective thinking
22
10.2 The Loanable Funds Market
1) One type of demander in the loanable funds market
A) wants funds to purchase inancial capital.
B) wants funds to purchase physical capital.
C) lends funds to purchase inancial capital.
D) lends funds to purchase physical capital.
E) wants physical capital in order to purchase inancial capital.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
2) The demand for loanable funds includes demand for
i. loans.
ii. stocks.
iii. bonds.
A) i, ii and iii
B) i only
C) i and ii
D) iii only
E) ii and iii
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
3) In the loanable funds market, demanders of funds are ________ and suppliers of funds are
________.
A) irms and the government if it has a budget surplus; households and the government if it
has a budget deicit
B) irms and the government if it has a budget deicit; households and the government if it
has a budget surplus
C) households and the government if it has a budget surplus; irms and the government if it
has a budget deicit
D) households and the government if it has a budget deicit; irms and the government if it
has a budget surplus
E) households and irms; the government if it has a budget deicit
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
4) In the loanable funds market, which of the following is an example of investment
demand?
A) Mary buying stocks for her retirement portfolio
B) George purchasing United States savings bonds for his son’s college fund
C) Scott purchasing a rookie-year baseball card for last year’s World Series MVP
D) Brian, owner of Bryan Games, purchasing computers to enhance the production of
games
23
E) Mark buying rare gold coins
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
5) The opportunity cost of the inancial resources used to inance the purchase of capital is
A) the real interest rate.
B) the supply of investment.
C) capital investment.
D) the quantity of investment demanded.
E) the price of the capital goods purchased.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
6) ________ relects a use of loanable funds, while ________ relects a supply of loanable
funds.
A) Business investment; the government budget deicit.
B) International investment; business investment.
C) The government budget deicit; private saving.
D) A government budget surplus; a government budget deicit.
E) International borrowing; a government budget deicit.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
24
7) If a irm wants to borrow $10 million and the real interest rate increases from 5 percent
to 6 percent, then the cost of the investment has increased by
A) $1 million per year.
B) $100,000 per year.
C) $6 million per year.
D) $600,000 per year.
E) nothing because the real interest rate is the return the irm will earn on its investment.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
8) Other things remaining the same, as the real interest rate increases,
A) irms will borrow more funds.
B) irms will borrow less funds.
C) irms’ demand for funds will not change.
D) irms will purchase new capital with its own funds instead of taking a loan.
E) the demand for loanable funds curve shifts leftward.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
9) Other things remaining the same, the ________ the real interest rate, the ________.
A) lower; greater the quantity of loanable funds demanded
B) lower; greater the demand for loanable funds
C) higher; greater the quantity of loanable funds demanded
D) higher; greater the demand for loanable funds
E) lower; greater the quantity of loanable funds supplied
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
25
10) Suppose the real interest rate increases from 4 percent to 6 percent. As a result,
A) governments decrease the quantity supplied of loanable funds.
B) irms increase their demand for loanable funds.
C) governments decrease their demand for loanable funds.
D) irms decrease the quantity demanded of loanable funds.
E) governments increase the supply of loanable funds.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
11) If the real interest rate rises,
A) the quantity of loanable funds demanded increases.
B) the quantity of loanable funds demanded decreases.
C) there is is movement down along the demand for loanable funds curve.
D) the demand for loanable funds curve shifts leftward.
E) the demand for loanable funds curve shifts rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
12) An increase in the quantity of loanable funds demanded occurs when
A) the real interest rate falls.
B) the real interest rate rises.
C) the supply of loanable funds decreases.
D) the expected proit rises.
E) wealth decreases.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
26
13) The quantity of loanable funds demanded increases if the real interest rate falls, all
other things remaining the same, because the real interest rate
A) determines the cost of living.
B) is the opportunity cost of investment.
C) afects the quantity of saving supplied.
D) is not related to the price of bonds and stocks.
E) afects the supply of saving which, in turn, determines the quantity of investment.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
14) As the economy enters a strong expansion, then irms’ demand for loanable funds
A) increases because expected proit increases.
B) decreases because expected proit decreases.
C) increases because the nominal interest rate rises.
D) decreases because the nominal interest rate falls.
E) increases because the real interest rate rises.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
15) Ford Motor Corporation is considering purchasing new technology that will increase
productivity by twenty percent. If Ford Motor Corporation decides to make this investment
at the going real interest rate, then
A) the quantity of loanable funds demanded increases.
B) the supply of loanable funds increases.
C) the demand for loanable funds increases.
D) Ford’s proits will decline.
E) saving increases.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
27
16) The demand for loanable funds
A) increases in an expansion and decreases in a recession.
B) decreases in an expansion and increases in a recession.
C) increases if population growth declines.
D) increases if the expected rate of proit decreases.
E) increases if wealth increases.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
17) Which of the following decreases the demand for loanable funds and shifts the demand
for loanable funds curve leftward?
A) The real interest rate rises.
B) The economy experiences a recession.
C) Technology that increases productivity is introduced.
D) An economy experiences a rapid increase in population.
E) Wealth decreases.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
18) Technological change can increase the demand for loanable funds because it
A) lowers the interest rate.
B) can increase the expected proit.
C) has little efect on production cost.
D) decreases the need for additional equipment.
E) increases people’s expected future disposable income.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
28
19) The demand for loanable funds curve shifts in response to changes in
A) the real interest rate.
B) the amount of household savings.
C) expected proits.
D) the expected future disposable income.
E) wealth.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
20) The demand for loanable funds increases if
A) technological growth slows.
B) population growth slows.
C) expected proit increases.
D) irms fear a recession.
E) wealth increases.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
21) The demand for loanable funds curve shows the relationship between the quantity of
loanable funds demanded and
A) the real interest rate.
B) the price level.
C) the capital stock.
D) depreciation.
E) the expected rate of proit.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
29
22) The demand for loanable funds curve shows the
A) negative relationship between the interest rate and the quantity of loanable funds
demanded.
B) positive relationship between the interest rate and the quantity of loanable funds
demanded.
C) negative relationship between the demand for loanable funds curve and the supply of
loanable funds curve.
D) positive relationship between the demand for loanable funds curve and the supply of
loanable funds curve.
E) U-shaped relationship between the interest rate and the quantity of loanable funds
demanded.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
23) The demand for loanable funds curve illustrates
A) the quantity of loanable funds demanded at any given level of disposable income.
B) the quantity of loanable funds demanded at any given level of the real interest rate.
C) the quantity of loanable funds supplied to the loanable funds market at any given level of
disposable income.
D) how the quantity of loanable funds demanded changes when the people’s expectations
about their future income changes.
E) how the quantity of loanable funds demanded changes when wealth changes.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
24) The demand for loanable funds curve shows that the higher the real interest rate, the
A) smaller the quantity of loanable funds demanded.
B) smaller the demand for loanable funds.
C) larger the quantity of loanable funds demanded.
D) larger the demand for loanable funds.
E) more the loanable funds demand curve shifts leftward.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
30