If the interest rate increases, then
a.households will decrease their level of saving.
b.the supply of loanable funds will fall because it now costs more to borrow funds and people who were supplying the funds will realize that fewer people will be willing to borrow their funds.
c.households will consume less and save more.
d.government will consume more because it now costs more to borrow funds to buy goods.
e.a, b, and d
12.The supply curve of loanable funds is __________ sloping, which implies that as the interest rate __________, the __________ loanable funds will increase.
a.downward; decreases; demand for
b.upward; increases; supply of
c.upward; decreases; supply of
d.downward; decreases; quantity demanded of
e.upward; increases; quantity supplied of
13.The term "positive rate of time preference" suggests that
a.people prefer more time to do something than less time.
b.people prefer goods to be available at an earlier time period than at a later time period.
c.some people are irrational because they would rather have something now than wait to consume it later when they can enjoy it more.
d.interest rates tend to increase over time.
e.businesses know that if they invest in capital goods, they will earn profits.
14.If consumers prefer earlier availability of goods to later availability, they are said to have a __________ rate of time preference.
e.none of the above
15.A person who greatly prefers present to future consumption has a(n) __________ rate of time preference.
16.If you have a high rate of time preference, then you are
a.willing to wait a longer time to consume a good than someone with a low rate of time preference.
b.not willing to wait a long time to consume a good.
c.willing to save your earnings so that you can buy more goods in the future.
d.not acting rationally, because it means that you are willing to delay consumption of goods and services until a later date (but you might not be around to do so).
e.a and c
17.The people most likely to save are those with a
a.low rate of time preference since they only slightly prefer present consumption to future consumption.
b.high rate of time preference since they greatly prefer present consumption to future consumption.
c.low rate of time preference since they greatly prefer present consumption to future consumption.
d.efficient rate of time preference since they do not prefer consuming luxury goods to necessities.
e.roundabout rate of time preference since they don't really care about consuming.
18.If you have a low rate of time preference, then you
a.buy goods right now because "you just can't wait."
b.are willing to save a larger percentage of your income than a person who has a high rate of time preference.
c.find it difficult to save much of your income because money "just sitting around" is worthless to you.
d.are willing to borrow money to buy goods now.
e.a, c, and d
19.Abigail has a high rate of time preference while Cynthia has a low rate of time preference. If the interest rate payable on savings accounts increases from 5 percent to 7 percent, then
a.Abigail would find it easier than Cynthia to cut back on consumption and increase her savings.
b.Cynthia would find it easier than Abigail to cut back on consumption and increase her savings.
c.neither Abigail nor Cynthia would decrease her consumption and increase her savings because relative time preferences have little to do with the interest rate.
d.Abigail and Cynthia would probably decrease their consumption and increase their savings by the same amount because the higher interest rate will affect them both to the same degree regardless of their time preferences.
20.Which of the following statements is true?
a.All persons have a high rate of time preference.
b.People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference.
c.People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference.
d.A high interest rate is the cause of a high rate of time preference.
e.none of the above
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