Question 1

Businesses typically issue bonds to finance

Accepted Answer

A)  their inventories.
B)  payments to their workers.
C)  spending on new plant and equipment.
D)  dividend payments to their stockholders.

Question 2

An increase in the corporate profits tax is likely to cause

Accepted Answer

A)  the equilibrium interest rate to rise and the equilibrium price of bonds to fall.
B)  the equilibrium interest rate to fall and the equilibrium price of bonds to rise.
C)  the equilibrium interest rate and the equilibrium price of bonds both rise.
D)  the equilibrium interest rate and the equilibrium price of bonds both fall.

Question 3

If the federal government were to guarantee a minimum rate of return on corporate bonds, the result would be a

Accepted Answer

A)  decline in the equilibrium interest rate.
B)  shift to the left in the supply curve for loanable funds.
C)  shift to the left in the demand curve for loanable funds.
D)  decline in bond prices.

Question 4

The bond supply curve slopes up because

Accepted Answer

A)  interest rates rise as bond prices rise.
B)  when bond prices are high, inflation is high.
C)  the lender is willing and able to offer more bonds when the price of the bond is low.
D)  the borrower is willing and able to offer more bonds when the price of the bond is high.

Question 5

As a result of higher expected inflation,

Accepted Answer

A)  the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
B)  the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
C)  the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
D)  the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.

Question 6

If the equilibrium interest rate in the loanable funds market on a one-year discount bond is 8%, then the equilibrium price in the bond market must be

Accepted Answer

A)  $9200.
B)  $9259.26.
C)  $9325.15.
D)  $10,000.

Question 7

In an open economy, desired domestic lending

Accepted Answer

A)  must equal desired domestic borrowing.
B)  must equal desired domestic borrowing plus the amount of international lending.
C)  is always greater than desired domestic borrowing.
D)  is always less than desired domestic borrowing.

Question 8

As wealth increases in the economy, savers are willing to

Accepted Answer

A)  hold more cash relative to their holdings of bonds.
B)  buy fewer bonds at any given price.
C)  buy more bonds at any given price.
D)  lend less at any given interest rate.

Question 9

Which of the following statements is correct?

Accepted Answer

A)  The supply curve for loanable funds slopes up, whereas the supply curve for bonds slopes down.
B)  The demand curve for loanable funds slopes up, whereas the demand curve for bonds slopes down.
C)  The demand curve for loanable funds and the demand curve for bonds both slope up.
D)  The supply curve for bonds and the supply curve for loanable funds both slope up.

Question 10

Which of the following would NOT cause the demand curve for bonds to shift?

Accepted Answer

A)  A change in wealth
B)  A change in the price of bonds
C)  A change in the liquidity of bonds
D)  A change in expected inflation

Question 11

The supply curve of loanable funds slopes up because

Accepted Answer

A)  at higher bond prices more loanable funds will be supplied.
B)  higher interest rates reduce the inflation rate.
C)  an increase in the interest rate makes lenders more willing and able to supply more funds.
D)  a decrease in the interest rate makes lenders more willing and able to supply more funds.

Question 12

If the equilibrium interest rate in the loanable funds market on a one-year discount bond is 10%, then the equilibrium price in the bond market must be

Accepted Answer

A)  $9000.
B)  $9090.91.
C)  $10,000.
D)  $11,000.

Question 13

The demand curve for bonds would be shifted to the left by an

Accepted Answer

A)  increase in wealth.
B)  increase in expected returns on bonds.
C)  increase in expected inflation.
D)  increase in the liquidity of bonds relative to other assets.

Question 14

If there is an excess demand for bonds at a given price of bonds, then

Accepted Answer

A)  the interest rate will fall.
B)  the interest rate will rise.
C)  the price of bonds will fall.
D)  the interest rate may rise or the interest rate may fall depending upon the reasons for the excess demand for bonds.

Question 15

If the government were to simultaneously cut the personal income tax and the corporate profits tax, the equilibrium interest rate

Accepted Answer

A)  would fall.
B)  would rise.
C)  would be unaffected.
D)  might either rise or fall.

Question 16

The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result

Accepted Answer

A)  the supply curve for bonds shifts to the right.
B)  the demand curve for loanable funds shifts to the left.
C)  the equilibrium interest rate falls.
D)  the equilibrium price of bonds rises.

Question 17

Suppose that a small economy that had previously been closed becomes open. If its real interest rate had previously been below the world real interest rate, we would expect that

Accepted Answer

A)  the country's real interest rate would remain below the world level.
B)  the country would become a net lender abroad.
C)  the country would become a new borrower abroad.
D)  the amount of loanable funds supplied in the country would decline.

Question 18

The equilibrium real interest rate in Belgium will be

Accepted Answer

A)  generally above the world real interest rate.
B)  generally below the world real interest rate.
C)  equal to the world real interest rate.
D)  determined by the equilibrium between desired domestic saving and desired domestic investment.

Question 19

If there is an excess supply of bonds at a given price of bonds, then

Accepted Answer

A)  the interest rate will fall.
B)  the interest rate will rise.
C)  the price of bonds will fall.
D)  the interest rate may rise or the interest rate may fall depending upon the reasons for the excess demand for bonds.

Question 20

If recessions in the United States were to increase in frequency, length, and severity, the likely result would be a(an)

Accepted Answer

A)  shift to the right in the supply curve for loanable funds.
B)  shift to the right in the demand curve for bonds.
C)  rise in the equilibrium interest rate.
D)  increase in the liquidity of corporate bonds.

Exam 6: Determining Market Interest Rates

The supply curve of loanable funds slopes up because

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If recessions in the United States were to increase in frequency, length, and severity, the likely result would be a(an)

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If there is an excess supply of bonds at a given price of bonds, then

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The bond supply curve slopes up because

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As a result of higher expected inflation,

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If there is an excess demand for bonds at a given price of bonds, then

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Which of the following would NOT cause the demand curve for bonds to shift?

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Suppose that a small economy that had previously been closed becomes open. If its real interest rate had previously been below the world real interest rate, we would expect that

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If the federal government were to guarantee a minimum rate of return on corporate bonds, the result would be a

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Which of the following statements is correct?

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The equilibrium real interest rate in Belgium will be

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An increase in the corporate profits tax is likely to cause

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The Federal Reserve issues a report indicating that future inflation will be higher than had previously seemed likely. As a result

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If the government were to simultaneously cut the personal income tax and the corporate profits tax, the equilibrium interest rate

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The demand curve for bonds would be shifted to the left by an

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Businesses typically issue bonds to finance

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If the equilibrium interest rate in the loanable funds market on a one-year discount bond is 8%, then the equilibrium price in the bond market must be

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If the equilibrium interest rate in the loanable funds market on a one-year discount bond is 10%, then the equilibrium price in the bond market must be

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In an open economy, desired domestic lending

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As wealth increases in the economy, savers are willing to

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