The two ways in which the word "interest" is used in economics are as the price for
a.loanable funds and the return earned by entrepreneurship.
b.loanable funds and the return earned by capital as an input in the production process.
c.money and the return for risk taking.
d.loanable funds and the return for risk taking.
2.Interest can be regarded as the
a.payment to entrepreneurs for incurring risk in the production of new goods.
b.rate that a lender receives for the use of the lender's loanable funds.
c.return earned by capital as an input in the production process.
d.dollar amount of loanable funds that a person borrows to invest in a capital good.
3.Is there a difference between the terms interest and interest rate?
a.No. Interest is simply a shorthand version of interest rate.
b.Yes. Interest refers to the return that capital earns, whereas interest rate is the payment to someone who lends money to someone else.
c.Yes. Interest is what one earns by placing funds in a savings account, whereas interest rate is the rate that the U.S. Treasury pays for borrowed funds when the government incurs a deficit.
d.Yes. Interest is a dollar payment for the use of funds, whereas interest rate is the ratio of that dollar amount to the total amount of funds borrowed.
4.Suppose you borrow $1,000 today with the promise to pay back $1,100 one year from today. Then the interest rate is __________, and the interest is __________.
a.1 percent; $60
b.10 percent; $1,100
c.5 percent; $100
d.$100; 10 percent
e.10 percent; $100
5.The nominal interest rate is determined
a.by the Federal Reserve system.
b.in the loanable funds market.
c.by the U.S. Treasury.
d.by the average rate of change in the price of capital goods.
6.As the interest rate falls,
a.the quantity demanded of loanable funds rises.
b.the quantity demanded of loanable funds falls.
c.the demand for loanable funds rises.
d.the supply of loanable funds falls.
7.The demand curve for loanable funds is
a.upward sloping, indicating that lower interest rates are associated with a lower demand for loanable funds.
b.downward sloping, indicating that businesses will increase their demand at lower interest rates, but that consumers will probably decrease the supply of loanable funds at lower interest rates.
c.downward sloping, indicating that both businesses and consumers will increase the quantity demanded of loanable funds as the interest rate decreases.
d.horizontal at the equilibrium interest rate.
8.Loanable funds are
a.another term for capital.
b.a particular type of investment fund that companies such as Merrill Lynch offer to consumers.
c.funds that someone borrows with a promise to pay interest for the use of the funds.
d.funds that someone lends with the requirement that interest be paid for the use of the funds.
e.c and d
9.The supply of loanable funds depends most directly on
b.people's saving and newly created money.
c.bond and stock activity.
d.the profits of firms.
10.Which of the following statements is false?
a.The quantity supplied of loanable funds and the interest rate are inversely related.
b.The supply curve of loanable funds is upward sloping.
c.One of the reasons the federal government demands loanable funds is that it needs to finance budget deficits.
d.Savers are people who consume less than their current income.
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