ECON102 Lecture Notes - Lecture 7: Loanable Funds, Real Interest Rate, Disposable And Discretionary Income
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ECON102 Full Course Notes
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6. If there is a shortage of loanable funds, then
a. |
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. |
b. |
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. |
c. |
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. |
d. |
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. |
7. We associate the term debt finance with
a. |
the bond market and we associate the term equity finance with the stock market. |
b. |
the stock market and we associate the term equity finance with the bond market. |
c. |
financial intermediaries and we associate the term equity finance with financial markets. |
d. |
financial markets and we associate the term equity finance with financial intermediaries. |
8. If the demand for loanable funds shifts to the right, then the equilibrium interest rate
a. |
and the quantity of loanable funds rises. |
b. |
and the quantity of loanable funds falls. |
c. |
rises and the quantity of loanable funds falls. |
d. |
falls and the quantity of loanable funds rises. |
9. Long-term bonds are
a. |
riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. |
b. |
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
c. |
less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. |
d. |
less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
10. Compared to bondholders, stockholders
a. |
face higher risk and have the potential for higher returns. |
b. |
face higher risk but receive a fixed payment. |
c. |
face lower risk and have the potential for higher returns. |
d. |
face lower risk but receive a fixed payment. |
11. The old adage, 'don't put all your eggs in one basket', is very similar to a modern bit of advice concerning financial matters:
a. |
Buy low-risk bonds. |
b. |
Use a medium of exchange. |
c. |
Diversify. |
d. |
Intermediate. |
12. A budget surplus is created if
a. |
the government sells more bonds than it buys back. |
b. |
the government spends more than it receives in tax revenue. |
c. |
private saving is greater than zero. |
d. |
None of the above is correct. |
Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the student's investment projects:
Student | Return |
---|---|
(Percent) | |
Yakov | 4 |
Charles | 7 |
Dina | 15 |
Assume borrowing and lending are prohibited, so each student uses only personal savings to finance his or her own investment project.
Complete the following table with how much each student will have a year later when the project pays its return.
Student | Money a Year Later |
---|---|
(Dollars) | |
Yakov | _________ |
Charles | _________ |
Dina | _________ |
Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate or.
If a studentâs expected rate of return is greater than r, he or she would choose to (lend, borrow).
Suppose the interest rate is 6 percent.
Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.
Now suppose the interest rate is 12 percent.
Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.
At an interest rate of ______%, the loanable funds market among these three students would be in equilibrium. At this interest rate, (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) would want to borrow, and (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) want to lend.
Suppose the interest rate is at the equilibrium rate.
Complete the following table with how much each student will have a year later after the investment projects pay their return and loans have been repaid.
Student | Money a Year Later |
---|---|
(Dollars) | |
Yakov | _________ |
Charles | _________ |
Dina | _________ |
True or False: Only borrowers are made better off, and lenders are made worse off.