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Assume that foreign investors who have invested in U.S.securities decide to decrease their holdings of U.S.securities and to instead increase their holdings of securities in their own countries.This should cause the supply of loanable funds in the United States to ____ and should place ____ pressure on U.S.interest rates.


A) decrease; upward
B) decrease; downward
C) increase; downward
D) increase; upward

E) A) and D)
F) A) and B)

Correct Answer

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If economic expansion is expected to increase, then demand for loanable funds should ____ and interest rates should ____.


A) increase; increase
B) increase; decrease
C) decrease; decrease
D) decrease; increase

E) B) and D)
F) A) and C)

Correct Answer

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The business demand for funds resulting from short-term investments is inversely related to the number of projects implemented and inversely related to the interest rate.

A) True
B) False

Correct Answer

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If inflation turns out to be lower than expected


A) savers benefit.
B) borrowers benefit while savers are not affected.
C) savers and borrowers are equally affected.
D) savers are adversely affected but borrowers benefit.

E) A) and B)
F) A) and C)

Correct Answer

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The equilibrium interest rate should


A) fall when the aggregate supply funds exceeds aggregate demand for funds.
B) rise when the aggregate supply of funds exceeds aggregate demand for funds.
C) fall when the aggregate demand for funds exceeds aggregate supply of funds.
D) rise when aggregate demand for funds equals aggregate supply of funds.
E) B and C

F) All of the above
G) A) and B)

Correct Answer

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The ____ suggests that the market interest rate is determined by factors that control the supply of and demand for loanable funds.


A) Fisher effect
B) loanable funds theory
C) real interest rate
D) none of the above

E) A) and B)
F) A) and C)

Correct Answer

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Which of the following is least likely to affect household demand for loanable funds?


A) a decrease in tax rates
B) an increase in interest rates
C) a reduction in positive net present value (NPV) projects available
D) All of the above are equally likely to affect household demand for loanable funds.

E) C) and D)
F) A) and D)

Correct Answer

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