Chp 10 MyEconLab – Flashcards
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Which of the following is the best measure of the standard of living of the typical person in a country?
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real GDP per person
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Potential GDP
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-increase over time as the labor force grows -increases over time as technological change occurs
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What is most likely to lead to sustained long-run growth?
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increase in human capital
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In determining whether to borrow funds, firms compare the rate of return they expect to make on an investment with
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the interest rate they must pay to borrow the necessary funds
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What factors determines the supply of loanable funds?
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the willingness of households and governments to save
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Holding all else constant, a federal government budget deficit will
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decrease the supply of loanable funds and increase the equilibrium real interest rate
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The shift in supply to the right represents a ____ in the supply of loanable funds
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decrease
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The shift in supply to the left represents a ___ in the supply of loanable funds
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increase
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With the shift in supply to the right, the equilibrium quantity of loanable funds
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decreases
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With the shift in supply to the left, the equilibrium quantity of loanable funds
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increases
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An increase in the real interest rate results in little increase in private savings by households
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the supply line increases as real interest rates and loanable funds increase
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A decrease in the real interest rate results in a substantial increase in spending on investment projects by businesses
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the demand line decreases as real interest rates decrease and loanable funds increase
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The federal government eliminates 401(k) retirement accounts
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the supply for real interest rates and loanable funds shift to the left
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The federal government reduces the tax on corporate profits
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the demand for real interest rates and loanable funds shifts to the right
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What is a lonable fund?
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real estate
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Households supply loanable funds because of the
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interest income received from the borrowers
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Businesses demand loanable funds because
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firms need to borrow funds for new projects, such as building new factories, or carrying out new research projects
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Crowding out occurs when
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governments must borrow funds which causes interest rates to rise and thus private investment is reduced
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An insurance company
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a financial intermediary because they take premiums and use them to purchase financial securities
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"Saving money is not lending. How can it be? When I save my money, I put it in a back. I don't loan it out to someone else."
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Incorrect. The supply of loanable funds is determined by household savings.
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What is a financial securities that represent promises to repay a fixed amount of funds?
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bonds
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What is not a service that the financial system provides for savers and borrowers?
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Guaranteeing savers high rate of return
