Mods 4.6-4.7: The Money & Loanable Funds Markets

What will happen to the money supply if the a Central Bank in a limited reserves economy sells bonds?

• money supply will increase

• interest rates will increase

• money supply will decrease

• interest rates will decrease

• demand for money will increase

The real interest rate equals:

• the nominal interest rate plus the inflation rate

• the nominal interest rate minus the inflation rate

• the nominal interest rate divided by the inflation rate

• the nominal interest rate times the inflation rate

• the federal funds rate

It is a basic accounting fact that the level of investment in a closed economy must equal the level of:

• capital inflows

• capital outflows

• national savings

• wealth

• financial assets

Choose 2 –

Business loan decisions are based on:

• the demand for the product manufactured

• the projected profit and the interest rate for loans

• consumer optimism

• the revenue and cost of a project

• the stock market

Which of the following will increase the demand for loanable funds?

• a federal government budget surplus

• an increase in perceived business opportunities

• an increase in the interest rate

• positive capital inflows

• a decrease in private saving rates

Which of the following will increase the supply of loanable funds?

• an increase in government debt

• decreased government borrowing

• an increase in private saving rates

• an increase in the expected inflation rate

• a decrease in capital inflows

The graph of the loanable funds market is different than that of the money market in which of the following ways?

• The demand curve slopes downward.

• The demand curve slopes upward.

• The supply curve slopes downward.

• The supply curve slopes upward.

• Price level is on the vertical axis.