MODULE 29: The Market for Loanable Funds

Multiple-Choice Questions

Question

The interest rate is
A.
the opportunity cost of lending money.
B.
the price borrowers pay for the use of lenders’ savings.
C.
a percentage of the amount saved by borrowers.
D.
the rate charged by banks to hold savings for one year.
E.
the amount earned by using profits to build a new factory.

The interest rate is
Question

Which of the following identities is true in a simplified economy with no government and no interaction with other countries?
A.
consumer spending = investment spending
B.
total income = consumer spending − investment spending
C.
total spending = investment spending + savings
D.
investment spending = total spending − savings
E.
savings = investment spending

Which of the following identities is true in a simplified economy with no government and no interaction with other countries?
Question

A budget surplus exists when the government does which of the following?
A.
saves
B.
collects less tax revenue than it spends
C.
has a negative budget balance
D.
increases the national debt
E.
uses expansionary fiscal policy

A budget surplus exists when the government does which of the following?
Question

Which of the following is a task of an economy’s financial system?
A.
maximizing risk
B.
increasing transactions costs
C.
decreasing diversification
D.
eliminating liquidity
E.
enhancing the efficiency of financial markets

Which of the following is a task of an economy’s financial system?
Question

A financial intermediary that resells shares of a stock portfolio is a
A.
mutual fund.
B.
pension fund.
C.
loan-backed security.
D.
bond broker.
E.
depository institution.

A financial intermediary that resells shares of a stock portfolio is a
Question

Which of the following assets is most liquid?
A.
stock
B.
bond
C.
loan
D.
mutual fund
E.
cash

Which of the following assets is most liquid?
Question

When money acts as a means of holding purchasing power over time, it is serving which function?
A.
medium of exchange
B.
source of liquidity
C.
store of value
D.
unit of account
E.
source of wealth

When money acts as a means of holding purchasing power over time, it is serving which function?
Question

Which of the following is an example of using money as a unit of account?
A.
buying a new T-shirt
B.
purchasing $10 worth of candy
C.
keeping the dollar you receive each year for your birthday for 10 years
D.
putting money into your savings account
E.
paying for lunch with your debit card

Which of the following is an example of using money as a unit of account?
Question

Which of the following is a desirable characteristic of money?
A.
fixed supply
B.
large denominations
C.
made of precious metal
D.
widely accepted
E.
backed by commodities

Which of the following is a desirable characteristic of money?
Question

Fiat money derives its value from which of the following?
A.
its official status
B.
the good being used as a medium of exchange
C.
a promise it can be converted into something valuable
D.
gold or silver
E.
exchange rates

Fiat money derives its value from which of the following?
Question

The M1 money supply includes which of the following?
A.
near-moneys
B.
checkable deposits
C.
savings accounts
D.
time deposits
E.
mutual funds

The M1 money supply includes which of the following?
Question

The present value of $1 you receive one year from now is equal to
A.
$1(1 + r).
B.
$1/(1 – r).
C.
$1/(1 + r).
D.
$1(1 + r²).
E.
$1(1 + r)².

The present value of $1 you receive one year from now is equal to
Question

If the interest rate is 2%, the amount received 1 year from now as a result of lending $1,000 today is
A.
$980.
B.
$1,000.
C.
$1,020.
D.
$1,200.
E.
$2,000.

If the interest rate is 2%, the amount received 1 year from now as a result of lending $1,000 today is
Question

The liquid assets banks keep in their vaults are known as bank
A.
deposits.
B.
savings.
C.
reserves.
D.
money.
E.
returns.

The liquid assets banks keep in their vaults are known as bank
Page 291

Question

The required reserve ratio is
A.
the most cash that banks are allowed to hold in their vault.
B.
set by the Federal Reserve.
C.
responsible for most bank runs.
D.
equal to 5% of bank deposits.
E.
the fraction of bank loans held as reserves.

The required reserve ratio is
Question

If rr is the reserve requirement, the money multiplier is equal to
A.
rr.
B.
1–rr.
C.
1/rr.
D.
rr².
E.
1/rr².

If
Question

Which of the following is part of the money supply but not part of the monetary base?
A.
checkable bank deposits
B.
bank reserves
C.
currency in circulation
D.
deposits at the Fed
E.
savings accounts

Which of the following is part of the money supply but not part of the monetary base?
Question

The Federal Reserve is a(n)
A.
single central bank located in New York.
B.
government agency overseen by the Secretary of the Treasury.
C.
system of 10 regional banks.
D.
institution that oversees the banking system.
E.
depository institution that lends to large corporations.

The Federal Reserve is a(n)
Question

The Federal Reserve is charged with doing all of the following EXCEPT
A.
providing financial services to commercial banks.
B.
supervising and regulating banks.
C.
maintaining the stability of the financial system.
D.
conducting monetary policy.
E.
insuring bank deposits.

The Federal Reserve is charged with doing all of the following EXCEPT
Question

Which of the following will increase the demand for money?
A.
a fall in the aggregate price level
B.
an increase in real GDP
C.
technological advances
D.
open-market operations by the Fed
E.
a decrease in the interest rate

Which of the following will increase the demand for money?
Question

The money supply curve is
A.
upward sloping.
B.
vertical.
C.
horizontal.
D.
downward sloping.
E.
U-shaped.

The money supply curve is
Question

When banking regulations were changed so that banks could pay interest on checking accounts, what was the effect on interest rates and the equilibrium quantity of money?
Interest rateQuantity of money
A.
increasedecrease
B.
decreaseincrease
C.
increaseincrease
D.
decreasedecrease
E.
increaseno change

When banking regulations were changed so that banks could pay interest on checking accounts, what was the effect on interest rates and the equilibrium quantity of money?
Question

Which of the following will shift the supply curve for loanable funds to the right?
A.
an increase in the rate of return on investment spending
B.
an increase in the government budget deficit
C.
a decrease in the national saving rate
D.
an increase in expected inflation
E.
capital inflows from abroad

Which of the following will shift the supply curve for loanable funds to the right?
Question

Crowding out is illustrated by which of the following changes in the loanable funds market?
A.
a decreasing equilibrium interest rate
B.
an increase in the demand for loanable funds
C.
a decrease in the demand for loanable funds
D.
an increase in the supply of loanable funds
E.
a decrease in the supply of loanable funds

Crowding out is illustrated by which of the following changes in the loanable funds market?
Question

The supply curve for loanable funds is
A.
upward sloping.
B.
vertical.
C.
horizontal.
D.
downward sloping.
E.
U-shaped.

The supply curve for loanable funds is