Question 1

In 2007,France's GDP totalled $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 totalled $1.9 trillion and...

Question 2

A small country is a net foreign borrower and its domestic supply of loanable funds increases.Consequently,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Accepted Answer

When the domestic supply of loanable funds increases, the equilibrium quantity of loanable funds used in the country does not change. This is because the increase in domestic supply is offset by a decrease in foreign borrowing.

Question 3

If the world real interest rate falls,then a country that is a net foreign lender

Accepted Answer

A fall in the world real interest rate reduces the return on lending, which typically leads a net foreign lender to decrease the amount of its lending.

Question 4

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 is financial capital because it refers to the money that is needed for funding and investment, while the re-designed production lines are physical capital because they refer to tangible assets used in the production process.

Question 5

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 amount of new capital spending. Therefore, knowledge of depreciation is needed to calculate net investment.

Question 6

In the global loanable funds market,

Accepted Answer

Funds flow into countries with the highest risk-adjusted interest rates because investors seek the highest returns for a given level of risk.

Question 7

A small country is a net foreign lender and its domestic supply of loanable funds increases.Consequently,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign lending ________.

Accepted Answer

When the domestic supply of loanable funds increases in a country that is a net foreign lender, the additional funds are likely to be lent abroad, increasing foreign lending, while the equilibrium quantity of loanable funds used domestically remains unchanged.

Question 8

In May,2011,the interest rate in North Korea was 5.4 percent. For the same month,the interest rate in the United States was slightly more than 1 percent.Suppose the risks in North Korea were the same as in the United States.If North Korea were integrated into the global economy,then

Accepted Answer

If North Korea were integrated into the global economy and had the same risk level as the United States, the higher interest rate in North Korea would attract funds, leading to an increase in the equilibrium quantity of loanable funds in North Korea.

Question 9

The real interest rate is ________ in the United States compared to Zimbabwe because ________.

Accepted Answer

The real interest rate is lower in the United States compared to Zimbabwe because there is a lower risk premium in the United States. This means that lenders in the US perceive a lower risk in lending money, therefore they demand a lower return on their investment, resulting in a lower real interest rate compared to Zimbabwe.

Question 10

A small country is a net foreign borrower and its domestic demand for loanable funds increases.Consequently,the equilibrium quantity of loanable funds used in the country ________ and the country's foreign borrowing ________.

Accepted Answer

When the domestic demand for loanable funds increases, the equilibrium interest rate in the country will also increase. As a result, the quantity of loanable funds supplied by domestic savers will increase, but the quantity demanded by domestic borrowers will also increase. The net effect is that the equilibrium quantity of loanable funds used in the country will increase. Since the country is a net foreign borrower, the increase in the equilibrium quantity of loanable funds used in the country will need to be borrowed from abroad, thus leading to an increase in the country's foreign borrowing.

Question 11

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

Accepted Answer

Greece and Spain are considered risky borrowers due to concerns about their ability to repay their debt, and therefore their interest rates reflect a sizable risk premium. This increases the perceived risk of lending to them and leads to higher interest rates.

Question 12

Real interest rates around the world tend to

Accepted Answer

Real interest rates tend to equalize across countries after adjusting for risk because financial capital is mobile and seeks the highest return, leading to capital flows that balance out differences.

Question 13

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

Accepted Answer

Greece and Spain are considered risky borrowers due to their high levels of public debt and economic instability, which increases the likelihood of default. Therefore, lenders require a higher interest rate to compensate for the greater risks involved in lending to these countries. This reflects a sizable risk premium.

Question 14

In the global loanable funds market,

Accepted Answer

In the global loanable funds market, loans of equal risk will have equal interest rates. This is because borrowers in the market are competing for funds from lenders, and lenders will require a higher return for loans that are riskier than loans with lower risk. Therefore, in order for borrowers to attract lenders, they must offer interest rates that are commensurate with the perceived risk of the loan. As a result, loans of equal risk will have equal interest rates.

Question 15

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 16

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 refers to offering ownership in a firm through the sale of stocks/shares. This allows the firm to raise money from investors who become shareholders and are entitled to a share of the firm's profits. This is different from a mortgage or bonds, which involve borrowing money and paying interest, and from gross investment, which refers to the total amount of investment made in a particular period.

Question 17

Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result,Country A will ________ funds from the rest of the world and engage in net foreign ________.

Accepted Answer

When exports are less than imports, it means that more money is leaving the country (outflow) than coming in (inflow). Therefore, Country A needs to borrow funds from the rest of the world to finance its trade deficit, which means it is engaging in net foreign borrowing. So, the correct option is C.

Question 18

The United States' August,2012 exports were $181.3 billion and its imports were $225.5 billion.During this month,the United States was

Accepted Answer

The United States' imports were greater than its exports, indicating that it was buying more goods and services from other countries than it was selling to other countries. In order to finance this trade deficit, the United States would need to borrow funds from the rest of the world.

Question 19

A small country is a net foreign borrower if its real interest rate without foreign borrowing is ________ the world real interest rate.

Accepted Answer

The answer of A small country is a net foreign...

Question 20

In 2007,France's GDP totalled $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

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

Quiz 7: Finance, Saving, and Investment

In 2007,France's GDP totalled $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.

A small country is a net foreign borrower and its domestic supply of loanable funds increases.Consequently,the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing .

If the world real interest rate falls,then a country that is a net foreign lender

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 ________.

In the global loanable funds market,

A small country is a net foreign lender and its domestic supply of loanable funds increases.Consequently,the equilibrium quantity of loanable funds used in the country and the country's foreign lending .

In May,2011,the interest rate in North Korea was 5.4 percent. For the same month,the interest rate in the United States was slightly more than 1 percent.Suppose the risks in North Korea were the same as in the United States.If North Korea were integrated into the global economy,then

The real interest rate is in the United States compared to Zimbabwe because .

A small country is a net foreign borrower and its domestic demand for loanable funds increases.Consequently,the equilibrium quantity of loanable funds used in the country and the country's foreign borrowing .

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

Real interest rates around the world tend to

The free international mobility of financial capital pulls real interest rates around the world toward equality. Why then might interest rates in Greece and Spain in 2012 be much higher than in other western economies?

In the global loanable funds market,

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

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 ________.

Suppose that Country A (a small country) has exports of $40 million and imports of $50 million. As a result,Country A will funds from the rest of the world and engage in net foreign .

The United States' August,2012 exports were $181.3 billion and its imports were $225.5 billion.During this month,the United States was

A small country is a net foreign borrower if its real interest rate without foreign borrowing is ________ the world real interest rate.

In 2007,France's GDP totalled $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.