Question 1

Figure 5.4 Suppose the world consists of two large open economies, Canada and the rest of the world. The figures above represent loanable funds graphs for these two economies. -Refer to Figure 5.4.The international capital market will be in equilibrium when the real interest rate in Canada is ________ and the real interest rate in the rest of the world is ________.

Accepted Answer

In order to achieve equilibrium in the international capital market, the real interest rates in Canada and the rest of the world must be equal. From the graph, we can see that this occurs at a real interest rate of 5% for both Canada and the rest of the world. Therefore, the answer is D (5%; 5%).

Question 2

Figure 5.3 -Refer to Figure 5.3.All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would cause which of the following shifts?

Accepted Answer

The answer of Figure 5.3 -Refer to Figure 5.3.All else...

Question 3

If the world real interest rate were 6% and the domestic real interest rate in Estonia were 4%,borrowers in Estonia would borrow at the rate of ________ and lenders in Estonia would lend at the rate of ________.

Accepted Answer

Borrowers in Estonia would borrow at the world real interest rate of 6% because it is higher than the domestic rate, and lenders would lend at the same world rate of 6% to earn more.

Question 4

Figure 5.4 Suppose the world consists of two large open economies, Canada and the rest of the world. The figures above represent loanable funds graphs for these two economies. -Refer to Figure 5.4.At an interest rate of 7%,

Accepted Answer

At an interest rate of 7%, foreign lenders have excess capital to lend in international markets, indicating a surplus of supply over demand.

Question 5

The higher the real interest rate,the ________ investment projects firms can profitably undertake,and the ________ the quantity of loanable funds they will demand.

Accepted Answer

Higher real interest rates increase the cost of borrowing, making fewer investment projects profitable, thus reducing the demand for loanable funds.

Question 6

Figure 5.2 -Refer to Figure 5.2.A shift from D₁ to D₂ will result from which of the following?

Accepted Answer

An increase in expected future profits would likely increase investment demand, shifting the demand curve from D₁ to D₂.

Question 7

Which of the following best represents total saving?

Accepted Answer

Total saving represents the amount of income (Y) that is not consumed (C), not used for government spending (G), and not sent abroad for net exports (NX). Therefore, the formula for total saving is (Y - C - G - NX).

Question 8

Figure 5.4 Suppose the world consists of two large open economies, Canada and the rest of the world. The figures above represent loanable funds graphs for these two economies. -Refer to Figure 5.4.At an interest rate of 7%,

Accepted Answer

The answer of Figure 5.4
  
Suppose the world consists...

Question 9

All else equal,an increase in net exports accompanied by a decrease in expected future profits would definitely result in

Accepted Answer

The answer of All else equal,an increase in net exports...

Question 10

Figure 5.1 -Refer to Figure 5.1.A shift from S₂ to S₁ will result from which of the following?

Accepted Answer

The answer of Figure 5.1 -Refer to Figure 5.1.A shift...

Question 11

The domestic real interest rate in a small open economy is

Accepted Answer

In a small open economy, the real interest rate is determined by the world real interest rate, as capital is highly mobile and investors can easily move their funds to countries with higher returns. The domestic interest rate must be equal to the world interest rate to prevent capital outflows or inflows that could disrupt the economy. Therefore, choice B is the correct answer. A is incorrect because the loanable funds market does not determine the interest rate in a small open economy. C is incorrect because the nominal interest rate includes inflation, while the real interest rate adjusts for inflation. D is incorrect because net exports do not determine the interest rate as they only affect the current account balance.

Question 12

Figure 5.3 -Refer to Figure 5.3.All else equal,an increase in net exports accompanied by a decrease in expected future profits would cause which of the following shifts?

Accepted Answer

An increase in net exports would shift the aggregate demand curve (D) to the right (D₂), as higher net exports represent an increase in spending. Meanwhile, a decrease in expected future profits would shift the aggregate supply curve (S) to the left (S₂), as firms reduce production levels. The combination of these two shifts would result in a movement from point A to point B in the figure. Therefore, the correct answer is D, as it represents a shift to the left in both the supply and demand curves.

Question 13

Figure 5.2 -Refer to Figure 5.2.A shift from D₂ to D₁ will result from which of the following?

Accepted Answer

An increase in corporate taxes would decrease the demand for investment, causing the demand curve to shift from D₂ to D₁.

Question 14

Figure 5.1 -Refer to Figure 5.1.All else equal,a decrease in the government's budget deficit will cause

Accepted Answer

The answer of Figure 5.1 -Refer to Figure 5.1.All else...

Question 15

Figure 5.3 -Refer to Figure 5.3.All else equal,a decrease in the desire of households to consume today accompanied by an increase in corporate taxes would cause which of the following shifts?

Accepted Answer

The answer of Figure 5.3 -Refer to Figure 5.3.All else...

Question 16

Figure 5.1 -Refer to Figure 5.1.A shift from S₁ to S₂ will result from all of the following except

Accepted Answer

The answer of Figure 5.1 -Refer to Figure 5.1.A shift...

Question 17

Suppose the federal government is successful in reducing the budget deficit,households decide to increase their saving,corporate taxes are reduced,and businesses expect to see an increase in future profits.Use the loanable funds model to explain how each of these events affects the demand and supply of loanable funds and illustrate your answer with a graph.Describe what should happen to the equilibrium real interest rate and the equilibrium levels of saving and investment.

Accepted Answer

The answer of Suppose the federal government is successful in...

Question 18

What determines the supply of loanable funds and the demand for loanable funds?

Accepted Answer

The answer of What determines the supply of loanable funds...

Question 19

All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would definitely result in

Accepted Answer

An increase in the government's budget deficit typically leads to higher demand for loanable funds, which can increase the equilibrium real interest rate.

Question 20

If the world real interest rate were 6% and the domestic real interest rate in Denmark were 9%,borrowers in Denmark would borrow at the rate of ________ and lenders in Denmark would lend at the rate of ________.

Accepted Answer

Borrowers in Denmark would prefer to borrow at the lower world real interest rate of 6%, while lenders would lend at the same rate to remain competitive.

Quiz 5: The Global Financial System and Exchange Rates

Figure 5.3 -Refer to Figure 5.3.All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would cause which of the following shifts?

If the world real interest rate were 6% and the domestic real interest rate in Estonia were 4%,borrowers in Estonia would borrow at the rate of and lenders in Estonia would lend at the rate of .

Figure 5.4 Suppose the world consists of two large open economies, Canada and the rest of the world. The figures above represent loanable funds graphs for these two economies. -Refer to Figure 5.4.At an interest rate of 7%,

The higher the real interest rate,the investment projects firms can profitably undertake,and the the quantity of loanable funds they will demand.

Figure 5.2 -Refer to Figure 5.2.A shift from D₁ to D₂ will result from which of the following?

Which of the following best represents total saving?

Figure 5.4 Suppose the world consists of two large open economies, Canada and the rest of the world. The figures above represent loanable funds graphs for these two economies. -Refer to Figure 5.4.At an interest rate of 7%,

All else equal,an increase in net exports accompanied by a decrease in expected future profits would definitely result in

Figure 5.1 -Refer to Figure 5.1.A shift from S₂ to S₁ will result from which of the following?

The domestic real interest rate in a small open economy is

Figure 5.3 -Refer to Figure 5.3.All else equal,an increase in net exports accompanied by a decrease in expected future profits would cause which of the following shifts?

Figure 5.2 -Refer to Figure 5.2.A shift from D₂ to D₁ will result from which of the following?

Figure 5.1 -Refer to Figure 5.1.All else equal,a decrease in the government's budget deficit will cause

Figure 5.3 -Refer to Figure 5.3.All else equal,a decrease in the desire of households to consume today accompanied by an increase in corporate taxes would cause which of the following shifts?

Figure 5.1 -Refer to Figure 5.1.A shift from S₁ to S₂ will result from all of the following except

What determines the supply of loanable funds and the demand for loanable funds?

All else equal,an increase in the government's budget deficit accompanied by a decrease in corporate taxes would definitely result in

If the world real interest rate were 6% and the domestic real interest rate in Denmark were 9%,borrowers in Denmark would borrow at the rate of and lenders in Denmark would lend at the rate of .