Question 1

In November 2008, automobile executives from Ford, GM and Chrysler testified to Congress that their firms needed a $25 billion bailout to prevent bankruptcies. The executives stated that part of the cash would be used to re-design production lines. The $25 billion is ________ and the re-designed production lines are ________.

Accepted Answer

The $25 billion represents financial capital, which is money used by businesses to buy what they need for their operations. The re-designed production lines represent physical capital, which refers to actual, tangible assets used in production.

Question 2

In 2008, the many people became unable to make payments on their mortgages and instead defaulted on them. As a result, the ________ of loanable funds curve shifts ________ and real interest rate ________.

Accepted Answer

When many people default on their mortgages, banks and financial institutions have less capital to lend out, which decreases the supply of loanable funds. This shift in the supply curve to the left leads to an increase in the real interest rate.

Question 3

In January 2013, you can put your savings in a Bank of America account and be paid 2 percent per year. During 2013, suppose the inflation rate is 3.4 percent. In 2013 you earned a real interest rate of

Accepted Answer

The real interest rate can be calculated using the formula: real interest rate = nominal interest rate - inflation rate. Here, it's 2% - 3.4% = -1.4%.

Question 4

In 2007, the interest rate banks in France charge each other for loans was 4.86 percent. The inflation rate in France in 2007 was 2.8 percent. The real interest rate in France is

Accepted Answer

The real interest rate can be calculated using the formula: real interest rate = nominal interest rate - inflation rate. Therefore, 4.86% - 2.8% = 2.06%.

Question 5

The Ricardo-Barro effect asserts that

Accepted Answer

The Ricardo-Barro effect suggests that when the government saves more, individuals may save less because they anticipate lower future taxes, thus affecting private saving.

Question 6

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by ________ and decreases the equilibrium quantity of investment by ________ than if the Ricardo-Barro effect is absent.

Accepted Answer

The Ricardo-Barro effect suggests that individuals anticipate future taxes to pay off government debt, leading them to save more. This increased saving offsets the government's deficit spending, resulting in a smaller impact on the real interest rate and investment compared to when the effect is absent.

Question 7

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. To calculate the amount of net investment in France for these years, you need to know

Accepted Answer

Net investment is calculated by subtracting depreciation from the total amount spent on new capital.

Question 8

A share of Apple stock has a price of $430 and gives $43 of Apple profit to its owner. The interest rate on this share is

Accepted Answer

The interest rate is calculated by dividing the profit by the price of the stock, which is $43 / $430 = 0.1 or 10 percent.

Question 9

During the financial crisis in 2007 and 2008, financial institutions believed that default risks were higher. As a result, there was ________ in the supply of loanable funds and a ________ in the real interest rate.

Accepted Answer

During the financial crisis, financial institutions perceived a higher default risk, leading to a decrease in the supply of loanable funds. This decrease in supply, coupled with unchanged or possibly even increased demand for funds, would naturally lead to a rise in the real interest rate as lenders demand a higher return for the increased risk.

Question 10

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in its firm. These owners of Grand Canyon Education the are entitled to a share of the firm's profits. This financing is an example of

Accepted Answer

Issuing stock allows a company to raise capital by offering ownership shares to the public. The owners of these shares, or stockholders, are entitled to a share of the company's profits, typically in the form of dividends.

Question 11

If the Ricardo-Barro effect occurs, an ________ in saving finances the government budget deficit and the real interest rate ________.

Accepted Answer

The Ricardo-Barro effect posits that when the government increases its borrowing, individuals will save more to pay for future tax liabilities, thus offsetting the government's deficit spending. As a result, the real interest rate remains unchanged because the increase in demand for loanable funds by the government is matched by an increase in supply of loanable funds from private saving.

Question 12

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. ________ investment in 2006 was ________ billion.

Accepted Answer

The answer of In 2007, France's GDP totaled $1.9 trillion...

Question 13

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. ________ investment in 2007 was ________ billion.

Accepted Answer

Net investment is calculated by subtracting depreciation from gross investment. Depreciation for 2007 is 12% of the GDP of $1.9 trillion, which is $228 billion. Gross investment in 2007 is $357 billion. Therefore, net investment = $357 billion - $228 billion = $129 billion.

Question 14

In 2010, the United States and foreign economies start to recover from the recession. U.S. firms increase their profit expectations. As a result, the demand for loanable funds curve shifts ________ and the real interest rate ________.

Accepted Answer

When U.S. firms increase their profit expectations, they are likely to invest more, increasing the demand for loanable funds. This shifts the demand curve for loanable funds rightward, and as demand increases, the real interest rate also increases due to higher competition for available funds.

Question 15

The table below shows data for the United States.  Between 2013 and 2014, the real interest rate ________ and caused a ________ the demand for loanable funds curve.

Accepted Answer

The answer of The table below shows data for the...

Question 16

The table below shows data for the U.S.  Between 2014 and 2015 the real interest rate ________ and caused a ________ the demand for loanable funds curve.

Accepted Answer

The answer of The table below shows data for the...

Question 17

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a ________ in the ________ for loanable funds curve.

Accepted Answer

A leftward shift in the demand for loanable funds curve occurs because firms expect lower profits and thus demand fewer loans for investment.

Question 18

In 2007, Singapore's government ran a budget surplus of $4.5 billion. The budget surplus ________ loanable funds and ________ the real interest rate.

Accepted Answer

A budget surplus increases the supply of loanable funds in the economy because the government has extra money that it can lend out or invest. This increased supply of loanable funds tends to lower the real interest rate, as there is more money available to borrow.

Question 19

A decrease in the government budget deficit decreases the ________ loanable funds and an increase in the government budget surplus increases the ________ loanable funds.

Accepted Answer

A decrease in the government budget deficit means the government is borrowing less, reducing the demand for loanable funds. An increase in the government budget surplus means the government has extra funds, which can be lent out, increasing the supply of loanable funds.

Question 20

The University of Central Florida (UCF) wanted "to create a town center where students can live, eat, study and revel in college traditions like football." In addition, the university needed funding to build dorms that would house 2000 students. UCF was able to secure financing by promising to pay a lender a specific amount of money on specific dates. This transaction takes place in the ________ market for ________ capital. www.sptimes.com 10/14/2007

Accepted Answer

The transaction described involves UCF promising to pay a lender specific amounts on specific dates, which is characteristic of a bond. Bonds are traded in the financial market.

Quiz 7: Finance, Saving, and Investment

In 2008, the many people became unable to make payments on their mortgages and instead defaulted on them. As a result, the of loanable funds curve shifts and real interest rate .

In January 2013, you can put your savings in a Bank of America account and be paid 2 percent per year. During 2013, suppose the inflation rate is 3.4 percent. In 2013 you earned a real interest rate of

In 2007, the interest rate banks in France charge each other for loans was 4.86 percent. The inflation rate in France in 2007 was 2.8 percent. The real interest rate in France is

The Ricardo-Barro effect asserts that

If the Ricardo-Barro effect is present, a government budget deficit raises the equilibrium real interest rate by and decreases the equilibrium quantity of investment by than if the Ricardo-Barro effect is absent.

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. To calculate the amount of net investment in France for these years, you need to know

A share of Apple stock has a price of $430 and gives $43 of Apple profit to its owner. The interest rate on this share is

During the financial crisis in 2007 and 2008, financial institutions believed that default risks were higher. As a result, there was in the supply of loanable funds and a in the real interest rate.

In November 2008, Grand Canyon Education chose to finance expansion by offering ownership in its firm. These owners of Grand Canyon Education the are entitled to a share of the firm's profits. This financing is an example of

If the Ricardo-Barro effect occurs, an in saving finances the government budget deficit and the real interest rate .

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. investment in 2006 was billion.

In 2007, France's GDP totaled $1.9 trillion and in 2006 GDP was $1.8 trillion. The total amount spent on new capital in 2007 was $357 billion and in 2006 was $335 billion. Suppose that depreciation is 12 percent of GDP. investment in 2007 was billion.

In 2010, the United States and foreign economies start to recover from the recession. U.S. firms increase their profit expectations. As a result, the demand for loanable funds curve shifts and the real interest rate .

The table below shows data for the United States. Between 2013 and 2014, the real interest rate and caused a the demand for loanable funds curve.

The table below shows data for the U.S. Between 2014 and 2015 the real interest rate and caused a the demand for loanable funds curve.

In 2008, the financial and housing crisis caused firms to decrease their profit expectations. As a result, there was a in the for loanable funds curve.

In 2007, Singapore's government ran a budget surplus of $4.5 billion. The budget surplus loanable funds and the real interest rate.

A decrease in the government budget deficit decreases the loanable funds and an increase in the government budget surplus increases the loanable funds.