25) The demand for loanable funds curve slopes downward because the
A) higher the real interest rate, the lower the cost of investment.
B) expected rate of proit is related positively to the real interest rate.
C) price of bonds and stocks is not related to the real interest rate.
D) real interest rate is the opportunity cost of investment.
E) expected rate of proit is factor that “rewards” irms for their investment.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
26) If the real interest rate falls, there is
A) an upward movement along the demand for loanable funds curve.
B) a downward movement along the demand for loanable funds curve.
C) a rightward shift of the demand for loanable funds curve.
D) a leftward shift of the demand for loanable funds curve.
E) a leftward shift of the supply of loanable funds curve.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
27) Which of the following occurs if the real interest rate falls?
A) The demand for loanable funds increases and the demand for loanable funds curve shifts
rightward.
B) The demand for loanable funds decreases and the demand for loanable funds curve
shifts leftward.
C) The quantity of loanable funds demanded increases and there is a movement down along
the demand for loanable funds curve.
D) The quantity of loanable funds demanded decreases increases and there is a movement
up along the demand for loanable funds curve.
E) The quantity of loanable funds demanded increases and the demand for loanable funds
curve shifts rightward.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
31
28) A fall in the real interest rate brings a
A) movement down along the demand for loanable funds curve but no shift in the curve.
B) rightward shift of the demand for loanable funds curve but no movement along the
curve.
C) movement up along the demand for loanable funds curve.
D) leftward shift of the demand for loanable funds curve.
E) movement down along the demand for loanable funds curve and a rightward shift of the
demand for loanable funds curve.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
29) In a business cycle recession, which of the following occurs?
A) Investment demand increases and the demand for loanable funds curve shifts rightward.
B) Investment demand decreases and the demand for loanable funds curve shifts leftward.
C) The quantity of investment demanded increases and there is a movement down along
the demand for loanable funds curve but no shift in the curve.
D) The quantity of investment demanded decreases increases and there is a movement up
along the demand for loanable funds curve but no shift in the curve.
E) The quantity of investment demanded decreases and there is a rightward shift of the
demand for loanable funds curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
30) During a recession, irms’ expected proit from investment ________ so the demand for
loanable funds curve ________.
A) falls; shifts rightward
B) falls; shifts leftward
C) rises; shifts rightward
D) rises; shifts leftward
E) falls; does not shift
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
32
31) What happens to the demand for loanable funds curve when the economy enters a
recession?
A) The demand for loanable funds curve shifts rightward because the real interest rate
falls.
B) The demand for loanable funds curve shifts leftward because the real interest rate falls.
C) The demand for loanable funds curve shifts rightward because expected proit falls.
D) The demand for loanable funds curve shifts leftward because expected proit falls.
E) The demand for loanable funds curve shifts leftward because wealth decreases.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
32) The demand for loanable funds curve shifts rightward when
A) the real interest rate rises.
B) the real interest rate falls.
C) expected proit increases.
D) expected proit decreases.
E) wealth rises.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
33) When the expected proit ________, investment demand ________ and the demand for
loanable funds curve shifts ________.
A) falls; decreases; leftward
B) rises; increases; leftward
C) falls; decreases; rightward
D) rises; decreases; rightward
E) falls; increases; rightward
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
33
34) An increase in the expected proit from new capital brings about a
A) movement up along the demand for loanable funds curve.
B) movement down along the demand for loanable funds curve.
C) rightward shift of the demand for loanable funds curve.
D) leftward shift of the demand for loanable funds curve.
E) rightward shift of the supply of loanable funds curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
35) Which of the following occurs if the expected proit increases?
A) Investment demand increases and the demand for loanable funds curve shifts rightward.
B) Investment demand decreases and the demand for loanable funds curve shifts leftward.
C) The quantity of investment demanded increases and there is a movement down along
the demand for loanable funds curve.
D) The quantity of investment demanded decreases and there is a movement up along the
demand for loanable funds curve.
E) The savings increases and the supply of loanable funds curve shifts rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
36) If irms became more optimistic about the future of the economy, which of the following
occurs?
A) Investment demand increases, and the demand for loanable funds curve shifts
rightward.
B) Investment demand decreases, and the demand for loanable funds curve shifts leftward.
C) The quantity of investment demanded increases, and there is a movement down along
the demand for loanable funds curve.
D) The quantity of investment demanded decreases, and there is a movement up along the
demand for loanable funds curve.
E) The saving decreases, and the supply of loanable funds curve shifts leftward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
34
37) In the igure above, the rightward shift from the demand for loanable funds curve DLF1
to the demand for loanable funds curve DLF2, could be the result of
A) a rise in the interest rate.
B) an increase in wealth.
C) an increase in expected proit.
D) a decrease in expected proit.
E) a fall in the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
38) In the igure above, the shift from DLF1 to DLF2 could result from
A) the economy entering a strong expansion.
B) an increase in the nominal interest rate.
C) a decrease in the real interest rate.
D) an increase in a government budget surplus.
E) the economy entering a recession.
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
35
39) In the igure above, the leftward shift from the demand for loanable funds curve DLF1
to the demand for loanable funds curve DLF3, could be the result of
A) a decrease in interest rates during an economic recession.
B) an increase in interest rates during an economic expansion.
C) the economy entering a recession.
D) a government budget surplus.
E) the economy entering an expansion.
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
40) In the igure above, the leftward shift from the demand for loanable funds curve DLF1
to the demand for loanable funds curve DLF3, could be the result of
A) a fall in the interest rate.
B) a decrease in expected proit.
C) an advancement in technology.
D) an increase in the population.
E) a rise in the interest rate.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
41) The supply of loanable funds is from
A) households and the government if it has a budget surplus.
B) households and the government if it has a budget deicit.
C) irms and the government if it has a budget surplus.
D) irms and the government if it has a budget deicit.
E) households and irms.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
36
42) The quantity of loanable funds supplied increases if the real interest rate rises, all other
things remaining the same, because the
A) real interest rate is the opportunity cost of saving.
B) real interest rate is the opportunity cost of consumption.
C) cost of living is determined by the real interest rate.
D) real interest rate is inversely related to the cost of buying on credit.
E) demand for investment increases when the real interest rate rises.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
43) The quantity of loanable funds supplied increases if the ________, all other things
remaining the same, because the ________.
A) real interest rate rises; real interest rate is the opportunity cost of saving
B) real interest rate rises; real interest rate is the opportunity cost of consumption
C) real interest rate rises; cost of living is determined by the real interest rate
D) real interest rate falls; real interest rate is the opportunity cost of consumption
E) real interest rate falls; real interest rate is the opportunity cost of saving
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: New
AACSB: Relective thinking
44) The real interest rate is ________ related to the supply of loanable funds because
________.
A) positively; the opportunity cost of consumption expenditure increases as the real
interest rate rises
B) negatively; the opportunity cost of consumption expenditure increases as the real
interest rate rises
C) positively; people are motivated to increase their consumption expenditure as the real
interest rate rises
D) negatively; people are motivated to save more as the real interest rate rises
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
37
45) If the real interest rate falls, people decide to ________ because the opportunity cost of
________.
A) increase their consumption expenditure; saving has decreased
B) increase their consumption expenditure; consumption has decreased
C) decrease their consumption expenditure; consumption has decreased
D) save more; saving has decreased
E) None of the above answers is correct.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
46) If the interest rate on student loans ________, students will ________.
A) rises from 6 percent to 12 percent; increase their saving in order to pay back the loan
sooner
B) rises from 6 percent to 12 percent; increase their consumption before it becomes too
expensive
C) falls from 6 percent to 1 percent; increase their saving in order to pay back the loan
sooner
D) falls from 6 percent to 1 percent; not change their saving but will change their
investment
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
47) Increasing savings and ________ go hand in hand because they both ________.
A) decreasing expenditures; are the result of an increase in real interest rates on the
loanable funds market
B) decreasing expenditures; are the result of an increase in nominal interest rates on the
loanable funds market
C) increasing expenditures; are the result of an increase in real interest rates on the
loanable funds market
D) increasing expenditures; are the result of an increase in nominal interest rates on the
loanable funds market
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: New
AACSB: Relective thinking
38
48) The supply of loanable funds schedule shows that the
A) higher the real interest rate, the greater the quantity of loanable funds supplied.
B) higher the real interest rate, the greater the opportunity cost of supplying loanable
funds.
C) higher the real interest rate, the lower the proit from making new investment.
D) lower the real interest rate, the greater the quantity of loanable funds supplied.
E) higher the real interest rate, the more the supply of loanable funds curve shifts
rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Revised
AACSB: Relective thinking
49) An increase in the real interest rate
A) has no efect on the loanable funds.
B) increases the quantity of loanable funds supplied.
C) increases current consumption.
D) decreases the quantity of loanable funds supplied.
E) shifts the supply of loanable funds curve rightward.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
50) As the real interest rate rises, the quantity of loanable funds supplied ________ and the
quantity of loanable funds demanded ________.
A) increases; increases
B) increases; decreases
C) decreases; increases
D) decreases; decreases
E) does not change; does not change
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
39
51) A decrease in people’s disposable income
A) increases saving.
B) increases consumption.
C) decreases saving.
D) increases saving and decrease consumption.
E) increases investment demand.
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
52) As the economy enters an expansion so that people’s expected future incomes rise,
there will be
A) an increase in the supply of loanable funds.
B) a leftward shift in the supply of loanable funds curve.
C) a decrease in the nominal interest rate.
D) a leftward shift in the demand for loanable funds curve.
E) None of the above answers is correct.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
53) When disposable income increases, saving will
A) decrease, and there is a movement downward along the supply of loanable funds curve.
B) increase, and there is a movement upward along the supply of loanable funds curve.
C) not change.
D) increase, and the supply of loanable funds curve shifts rightward.
E) decrease, and the supply of loanable funds curve shifts leftward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
40