1. Borrowers in the loanable funds market consist of governments and firms. 2. Foreign entities are generally borrowers of domestic (U.S.) loanable funds. 3. The government engages... 1. Borrowers in the loanable funds market consist of governments and firms. 2. Foreign entities are generally borrowers of domestic (U.S.) loanable funds. 3. The government engages in more deficit spending. Ceteris paribus, this would cause the demand for loanable funds to increase. 4. You borrow $10,000 today at a nominal rate of 5 percent; inflation for the past 10 years has been exactly 2 percent. Today, inflation instantly rises to 7 percent and stays that way for the duration of your loan. Based on the above information, ceteris paribus, today the real rate of interest on your loan is now -2 percent. 5. As income and wealth rise, we would expect savings to increase as people save some of the extra wealth or income they have. 6. Assuming the figure represents the market for loanable funds, which of the following would represent the government running a larger budget deficit? 7. Those with the least patience have the greatest time preference. 8. Firms expect more sales and profits in the near future; this would cause the demand for loanable funds to increase. 9. Assume foreign incomes rise. Ceteris paribus, this would cause the demand for loanable funds to increase. 10. It is likely that as more baby boomers reach retirement, the demand for loanable funds will shift left. 11. If the interest rate of a one-year bond is 10 percent and its face value is $5,000, the dollar price of the bond is $4,545.45. 12. Which of the following statements about bonds is true? Bond interest rates rise with increased default risk. 13. A higher bond rating directly translates into higher prices and lower rates on the firm’s bonds. 14. Which of the companies listed is a private bond-rating agency? Fitch. 15. The creation of a new security by combining otherwise separate loan agreements is called securitization. 16. The figure depicts the workings of the loanable funds market. Where would the label 'savers/lenders' go? 17. The main argument for the Troubled Asset Relief Program implemented by the U.S. government during the financial crisis of 2007–2008 was that without large financial intermediaries, future GDP would collapse. 18. Which of the companies listed is a private bond-rating agency? Fitch. 19. Which of the following do stocks and bonds have in common? Both are means for the issuing firm to raise money for operations. 20. What do the Dow Jones Industrial Average (the Dow) and the Standard & Poor’s (S&P) 500 have in common? They both track overall stock prices. 21. Average world income began to increase rapidly during the Industrial Revolution. 22. If you earn a subsistence-level income, much of your time is spent acquiring basic necessities such as food, clothing, and shelter. 23. From 2013 to 2014, U.S. real gross domestic product (GDP) increased by 2.4 percent and the U.S. population grew by 0.7 percent. Therefore, per capita real GDP in the United States increased by 1.7 percent. 24. From 2009 to 2010, nominal gross domestic product (GDP) in the United States grew by 3.8 percent. Given that prices increased by 1 percent and the population grew by 1 percent, we know that per capita real GDP grew by 2.8 percent. 25. If your income increases at a rate of 2 percent per year, how long will it take to double your income? 35 years. 26. Resources are also known as factors of production. 27. Consider a country with a nominal gross domestic product (GDP) of $5 billion in 2010 and $15 billion in 2015. In the same period, the population grew by 10 percent and price levels increased by 90 percent. What is the economic growth for this country? 100 percent. 28. A national news source reports the nominal gross domestic product (GDP) grew 6 percent in the last year. However, inflation was 4 percent. What was the real GDP growth? 2 percent. 29. The text defines 'human capital' as the quantity, knowledge, and skills of the workers in the economy. 30. What is NOT an example of an institution? Significant monuments. 31. When the price level rises, consumption declines from the wealth effect, investment declines from the interest rate effect, and net exports decline from the international trade effect. 32. An increase in the value of the dollar (its exchange rate) will decrease aggregate demand. 33. The slope of the short-run aggregate supply curve can be explained by sticky input prices and flexible output prices. 34. Suppose new drilling techniques increase the world oil supply. In the long run, output will increase and the price level will decrease. 35. If the current short-run equilibrium level of output is less than full-employment output, we can then expect that in the long run the price level will rise. 36. Suppose there is a surge in stock market values. In the short run, we would expect the price level to increase and the unemployment rate to decrease. 37. Which of the following would cause an increase in the price level in the long run? Investment increases. 38. Based on the figure, starting at point A, if there is an increase in government spending, then in the short run we would move to point B and in the long run to point C. 39. An increase in expected future income can be expected to shift the aggregate demand curve to the right. 40. Suppose interest rates increase from 1 percent to 3 percent. In the short run, one can expect output in the United States to decrease and the price level to increase. Read more