Q: If a bond pays $5 per year and its price is $100, what is the interest rate on the bond?

$$ \frac{5}{100} \times 100 = 5\% $$

Question 1

Suppose the gross investment in an economy is $30,000 and depreciation is $20,000. What is the net investment, and what does this imply about the capital stock?

Accepted Answer

$10,000; the capital stock is growing

Question 2

Which of the following best describes the relationship between asset prices and interest rates?

Accepted Answer

Asset price increases cause interest rates to fall

Question 3

If a bond pays $5 per year and its price is $100, what is the interest rate on the bond?

Accepted Answer

$$ \frac{5}{100} 	imes 100 = 5\% $$

Question 4

Which equation correctly represents national saving in an open economy?

Accepted Answer

$$ I = S + (T - G) + (M - X) $$

Question 5

If the nominal interest rate is 6% and the inflation rate is 2%, what is the approximate real interest rate?

Accepted Answer

$$ 4\% $$

Question 6

A government budget deficit will most likely have which effect in the loanable funds market?

Accepted Answer

Increase the demand for loanable funds and raise the real interest rate

Question 7

Which of the following is NOT a determinant of the supply of loanable funds?

Accepted Answer

Expected profit

Question 8

According to the Ricardo–Barro effect, what happens when the government runs a budget deficit?

Accepted Answer

Private saving increases, and the real interest rate remains unchanged

Question 9

If the real interest rate is above equilibrium in the loanable funds market, what will occur?

Accepted Answer

There will be a surplus of loanable funds, and the interest rate will fall

Question 10

Which of the following scenarios would shift the supply curve of loanable funds to the right?

Accepted Answer

An increase in disposable income

Question 11

A rise in the real interest rate will have what effect on the quantity of loanable funds supplied and demanded?

Accepted Answer

Increase supply, decrease demand

Question 12

If a country’s investment exceeds its domestic saving, how is the difference financed?

Accepted Answer

By borrowing from the rest of the world

Question 13

Which of the following best describes the crowding-out effect?

Accepted Answer

Government deficits reduce private investment by raising interest rates

Question 14

Which formula correctly calculates saving for a household?

Accepted Answer

$$ 	ext{Saving} = 	ext{Income} - 	ext{Consumption} - 	ext{Taxes} $$

Question 15

Which of the following would cause the demand for loanable funds to shift to the right?

Accepted Answer

An increase in expected profit

Question 16

If the government runs a budget surplus, what is the likely effect on the loanable funds market?

Accepted Answer

The supply of loanable funds increases, lowering the real interest rate

Question 17

Which of the following is the opportunity cost of borrowing in the loanable funds market?

Accepted Answer

The real interest rate

Question 18

A fall in the real interest rate will most likely cause which of the following?

Accepted Answer

An increase in investment and an increase in the quantity of loanable funds demanded

Question 19

Which of the following is NOT a way that wealth can increase?

Accepted Answer

Capital losses

Question 20

Which of the following best explains why financial institutions are important for economic growth?

Accepted Answer

They channel funds from savers to borrowers, enabling investment in capital

Finance, Saving, and Investment: Macroeconomics Study Guide

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