83) In the loanable funds market, if the real interest rate is higher than the equilibrium real
interest rate,
A) there is a shortage of loanable funds.
B) there is a surplus of loanable funds.
C) there is a surplus of investment.
D) the demand for loanable funds curve shifts rightward to restore the equilibrium.
E) the demand for loanable funds curve shifts leftward to restore the equilibrium.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
84) At the current interest rate, the quantity of loanable funds supplied is greater than the
quantity of loanable funds demanded. Therefore
A) the real interest rate is below the equilibrium level.
B) the real interest rate is above the equilibrium level.
C) equilibrium will not be achieved until something shifts the supply of loanable funds
curve leftward.
D) equilibrium will not be achieved until something shifts the demand for loanable funds
curve rightward.
E) equilibrium will not be achieved until something shifts the supply of loanable funds
curve rightward.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
85) When the real interest rate ________ the equilibrium real interest rate, there is a
________ of loanable funds and the real interest rate ________.
A) exceeds; surplus ; falls
B) is less than; surplus; rises
C) exceeds; shortage; rises
D) is less than; shortage; falls
E) exceeds; surplus; rises
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
51
86) The igure above shows the loanable funds market. The equilibrium real interest rate is
________, and the equilibrium quantity of loanable funds is ________.
A) 6 percent; $2.0 trillion
B) 4 percent; $2.5 trillion
C) 8 percent; $1.5 trillion
D) 0 percent; $3.5 trillion
E) 4 percent; $1.5 trillion
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
87) The igure above shows the loanable funds market. If the real interest rate is 2 percent,
then
A) there will be government intervention in the market to make sure there is no credit
crisis.
B) there will be a leftward shift in the demand for loanable funds curve.
C) there is a surplus in the loanable funds market.
D) there is a shortage in the loanable funds market
E) the demand for loanable funds curve will shift rightward.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
52
88) The igure above shows the loanable funds market. If the real interest rate is 10
percent, then
A) there is a shortage in the loanable funds market.
B) there is a surplus in the loanable funds market.
C) the interest rate must increase.
D) the government must intervene in order to prevent a credit crisis.
E) savers will exit the market because of the high opportunity cost of saving.
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Revised
AACSB: Analytical thinking
89) The igure above shows the loanable funds market. The equilibrium real interest rate is
________ percent, and the equilibrium quantity of loanable funds is ________.
A) 4; $1.8 trillion
B) 6; $1.6 trillion
C) 8; $1.4 trillion
D) 4; $1.4 trillion
E) 8; $1.8 trillion
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
53
90) The igure above shows the loanable funds market. At an interest rate of
A) 8 percent, there is a surplus of loanable funds.
B) 8 percent, the quantity demanded of loanable funds exceeds the quantity supplied.
C) 4 percent, the quantity supplied of loanable funds equals $18 trillion.
D) 6 percent, the quantity demanded of loanable funds equals $14 trillion.
E) 4 percent, there is a surplus of loanable funds.
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
91) The igure above shows the loanable funds market. At an interest rate of
A) 4 percent, there is a surplus of loanable funds.
B) 4 percent, there is a shortage of loanable funds.
C) 8 percent, the quantity of loanable funds supplied is $14 trillion.
D) 8 percent, the quantity demanded of loanable funds is $18 trillion.
E) 6 percent, savers will exit the market because the reward to saving is too low.
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
92) Suppose that there is an increase in disposable income and simultaneously an increase
in the expected proitability of investment. As a result, the equilibrium real interest rate
________ and the equilibrium quantity of loanable funds ________.
A) rises; increases
B) falls; increases
C) remains unchanged; increases
D) might rise, fall, or remain unchanged; increases
E) might rise, fall, or remain unchanged; decreases
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
54
93) Suppose that there is an increase in expected future disposable income and
simultaneously an increase in the expected proitability of investment. As a result, the
equilibrium real interest rate ________ and the equilibrium quantity of loanable funds
________.
A) rises; might increase, decrease, or not change
B) rises; increases
C) rises; decreases
D) falls; might increase, decrease, or not change
E) falls; increases
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
94) Suppose irms become more optimistic about the economy’s ability to avoid a recession
and hence the expected proit increases. As a result, the demand for loanable funds curve
shifts ________ and the real interest rate ________.
A) rightward; rises
B) rightward; falls
C) leftward; rises
D) leftward; falls
E) rightward; does not change
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
95) A decrease in expected proit
A) lowers the equilibrium real interest rate.
B) raises the equilibrium real interest rate.
C) increases the demand for loanable funds.
D) decreases the supply of loanable funds.
E) increases the supply of loanable funds.
Skill: Level 3: Using models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
55
96) If the real interest rate falls, other things being the same, the quantity of loanable
funds demanded ________ and the quantity of loanable funds supplied ________.
A) increases; decreases
B) increases; increases
C) decreases; does not change
D) does not change; decreases
E) decreases; decreases
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
97) The demand for loanable funds
A) increases in a recession.
B) decreases in an expansion.
C) increases when irms are optimistic about the proit from investing in capital.
D) increases when wealth increases.
E) decreases when wealth increases.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
98) Other things remaining the same, a ________ in the real interest rate ________ the
quantity of saving supplied and ________ the quantity of loanable funds supplied.
A) fall; increases; increases
B) rise; increases; increases
C) fall; increases; decreases
D) fall; decreases; increases
E) rise; increases; decreases
Skill: Level 1: Deinition
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
56
99) An increase in wealth leads to ________ loanable funds.
A) an increase in the supply of
B) an increase in the demand for
C) a decrease in the supply of
D) a decrease in the demand for
E) no change in either the supply of loanable funds or the demand for
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
100) If the real interest rate falls, there is
A) an upward movement along the supply of loanable funds curve.
B) a downward movement along the supply of loanable funds curve.
C) a rightward shift of the supply curve of loanable funds and no shift in the demand for
loanable funds curve.
D) a leftward shift of the supply of loanable funds curve and no shift in the demand for
loanable funds curve.
E) a leftward shift of the supply of loanable funds curve and a rightward shift in the
demand for loanable funds curve.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
101) If, at the current interest rate, the quantity of loanable funds supplied is less than the
quantity of loanable funds demanded, then
A) the supply of loanable funds curve shifts rightward and the real interest rate rises.
B) the supply of loanable funds curve shifts leftward and the real interest rate falls.
C) the real interest rate falls.
D) the real interest rate rises.
E) the supply of loanable funds curve shifts leftward and the real interest rate rises.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.2
Status: Old
AACSB: Relective thinking
57
102) If expected proit falls, the demand for loanable funds curve shifts ________, and the
real interest rate ________.
A) rightward; rises
B) rightward; falls
C) leftward; rises
D) leftward; falls
E) leftward; does not change
Skill: Level 4: Applying models
Section: Checkpoint 10.2
Status: Old
AACSB: Analytical thinking
10.3 Government in Loanable Funds Market
1) For a government to add to the supply of loanable funds, it must
A) borrow.
B) have a budget surplus.
C) have a budget deicit.
D) raise the real interest rate.
E) increase its investment demand.
Skill: Level 1: Deinition
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
2) If a government has a budget deicit, it must
A) borrow in the loanable funds market.
B) increase taxes.
C) lower the real interest rate.
D) decrease its expenditures.
E) decrease taxes.
Skill: Level 1: Deinition
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
58
3) Government saving is equal to
A) the quantity of investment demanded.
B) net taxes minus government expenditures.
C) net taxes plus government expenditures.
D) private savings minus government expenditures.
E) net taxes.
Skill: Level 1: Deinition
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
4) If there is no Ricardo-Barro efect, the government
A) plays no direct role in the loanable funds market because it doesn’t afect either the
demand for loanable funds or the supply of loanable funds.
B) always has negative saving and therefore lowers the real interest rate.
C) only afects the demand for loanable funds curve in the loanable funds market.
D) increases the supply of loanable funds if it has a budget surplus and shifts the supply of
loanable funds curve.
E) has no efect because private saving changes to ofset the efect that the government’s
budget deicit or surplus might otherwise have.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
5) If there is no Ricardo-Barro efect, an increase in the government budget surplus
A) decreases private saving.
B) increases private saving.
C) decreases the supply of loanable funds.
D) increases the supply of loanable funds.
E) has no efect on the demand for loanable funds, the supply of loanable funds, or the real
interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
59
6) If there is no Ricardo-Barro efect, a government budget surplus
A) increases the supply of loanable funds.
B) decreases the supply of loanable funds.
C) increases the demand for loanable funds.
D) decreases the demand loanable funds.
E) has no efect on the demand for loanable funds, the supply of loanable funds, or the real
interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
7) If there is no Ricardo-Barro efect, an increase in the government budget surplus will
A) decrease the supply of loanable funds.
B) raise the real interest rate.
C) lower the real interest rate.
D) decrease the demand for loanable funds.
E) not change the demand for loanable funds, the supply of loanable funds, or the real
interest rate.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
8) If there is no Ricardo-Barro efect, an increase in the government budget deicit
A) raises the equilibrium real interest rate.
B) lowers the equilibrium real interest rate.
C) decreases the demand for loanable funds.
D) decreases the supply of loanable funds.
E) increases the supply of loanable funds.
Skill: Level 2: Using deinitions
Section: Checkpoint 10.3
Status: Old
AACSB: Relective thinking
60