1) A security that represents a debt to be paid is known as a(n) rating. bank. index. bond. stock. 2) One example of a financial intermediary is a...

1) A security that represents a debt to be paid is known as a(n)

• rating.
• bank.
• index.
• bond.
• stock.

2) One example of a financial intermediary is a

• security.
• stock.
• bank.
• financial market.
• bond.

3) What is the effect of an increase in the productivity of capital?

• It reduces investor confidence.
• It increases the supply of loanable funds.
• It increases the demand for loanable funds.
• It decreases the supply of loanable funds.
• It decreases the demand for loanable funds.

4) In the last decade, the U.S. savings rate has

• rebounded somewhat.
• dropped to new lows.
• climbed to historic highs.
• leveled off around the historical average.
• begun to come down from unusually high levels.

5) Which of the following reflects an accurate economic chain of events?

• Higher interest rates increase savings, which causes consumption smoothing.
• Investment finances savings, which causes the economy to shrink.
• Savings finances future consumption, which allows future production to increase from a larger capital stock.
• Investment finances future consumption, which allows incomes—and thus savings—to grow.
• Savings finances investment, which allows the economy to grow from a larger capital stock.

6) The demand for loanable funds decreases while the supply simultaneously increases. This would cause the equilibrium

• quantity of loanable funds to decrease and the equilibrium interest rate to increase.
• interest rate to decrease, but the new equilibrium quantity would be uncertain.
• quantity of loanable funds to increase and the equilibrium interest rate to decrease.
• quantity of loanable funds to increase, but the effect on the equilibrium interest rate would be uncertain.
• interest rate to increase, but the new equilibrium quantity would be uncertain.

7) Which combination of events could have caused the equilibrium interest rate to fall and the equilibrium quantity of loanable funds (both borrowed and lent) to fall?

• A baby boom begins, and investor confidence rises.
• People have lower time preferences, and capital is more productive.
• A baby boom begins, and people have higher time preferences.
• People have lower time preferences, and governments run larger deficits.
• Firms are more pessimistic, and governments run fewer deficits.

8) The nominal interest rate is

• the interest rate that is corrected for inflation.
• the interest rate that is not corrected for inflation.
• the rate charged on loans for automobiles and other personal loans but not the rate charged on home loans.
• equal to the real interest rate minus the inflation rate.
• the rate of interest charged to most large commercial borrowers.

9) The interest rate represents

• the opportunity cost of consumption.
• the opportunity cost of saving.
• only the opportunity cost of taking a different job.
• the price of savings but not investment.
• the opportunity cost of saving plus the opportunity cost of inflation.