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Exam 2: Determination of Interest Rates

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Question 31

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What is the basis of the relationship between the Fisher effect and the loanable funds theory?

A) the saver's desire to maintain the existing real rate of interest
B) the borrower's desire to achieve a positive real rate of interest
C) the saver's desire to achieve a negative real rate of interest
D) B and C

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Question 32

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According to the Fisher effect, if the real interest rate is zero, the nominal interest rate must be equal to the expected inflation rate.

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Question 33

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The real interest rate can be forecasted by subtracting the ____ from the ____ for that period.

Which of the following will probably not result in an increase in the business demand for loanable funds?

The ____ sector is the largest supplier of loanable funds.

The crowding-out effect occurs when:

Which of the following is likely to cause a decrease in the equilibrium U.S. interest rate, other things being equal?

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

If the federal government reduces its budget deficit, this causes a(n) ____ in the supply of loanable funds, and a(n) ____ in the demand for loanable funds.

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.

Other things being equal, foreign governments and corporations would demand ____ U.S. funds if their local interest rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is ____ related to U.S. interest rates.

At any given point in time, households would demand a ____ quantity of loanable funds at ____ rates of interest.

The equilibrium interest rate

Other things being equal, a ____ quantity of U.S. funds would be demanded by foreign governments and corporations if their domestic interest rates were ____ relative to U.S. rates.

Which of the following is a valid representation of the Fisher effect?

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

The demand for funds resulting from business investment in short-term assets is ____ related to the number of projects implemented, and is therefore ____ related to the interest rate.

If the real interest rate was negative for a period of time, then

If inflation and nominal interest rates move more closely together over time than they did in earlier periods, this would ____ the volatility of the real interest rate movements over time.

A ____ federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate, causing an ____ shift in the demand schedule.