Mod 29 Quiz

A business will want to borrow to undertake an investment project when the rate of return on that project is:

• less than the interest rate.

• greater than the interest rate.

• greater than the exchange rate.

• equal to the inflation rate.

• less than the inflation rate.

In the market for loanable funds, suppose the current interest rate is 5%. At a rate of 5%, investors wish to borrow $100 million and savers wish to save $125 million. We would expect:

• the interest rate to fall as there is currently a shortage of loanable funds.

• the interest rate to rise as there is currently a surplus of loanable funds.

• the interest rate to rise as there is currently a shortage of loanable funds.

• the interest rate to fall as there is currently a surplus of loanable funds.

• the interest rate to remain the same as the loanable funds market is in equilibrium.

Economists use _____ as a model to show how savers and borrowers come together to determine the equilibrium rate of interest.

• the money market

• the market for loanable funds

• aggregate demand and aggregate supply

• the financial system

• the foreign exchange market

An increase in the demand for loanable funds would most likely be caused by a(n):

• increase in the market interest rate.

• increase in business tax rates.

• increase in the amount of expected business opportunities

• decrease in the amount of expected business opportunities.

• increase in private savings.

Crowding out negatively affects the economy by:

• decreasing government borrowing.

• decreasing consumption.

• increasing private borrowing.

• reducing investment spending on physical capital.

• decreasing government deficits.