Chp 10 MyEconLab

question

Which of the following is the best measure of the standard of living of the typical person in a country?
answer

real GDP per person
question

Potential GDP
answer

-increase over time as the labor force grows -increases over time as technological change occurs
question

What is most likely to lead to sustained long-run growth?
answer

increase in human capital
question

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
question

What factors determines the supply of loanable funds?
answer

the willingness of households and governments to save
question

Holding all else constant, a federal government budget deficit will
answer

decrease the supply of loanable funds and increase the equilibrium real interest rate
question

The shift in supply to the right represents a ____ in the supply of loanable funds
answer

decrease
question

The shift in supply to the left represents a ___ in the supply of loanable funds
answer

increase
question

With the shift in supply to the right, the equilibrium quantity of loanable funds
answer

decreases
question

With the shift in supply to the left, the equilibrium quantity of loanable funds
answer

increases
question

An increase in the real interest rate results in little increase in private savings by households
answer

the supply line increases as real interest rates and loanable funds increase
question

A decrease in the real interest rate results in a substantial increase in spending on investment projects by businesses
answer

the demand line decreases as real interest rates decrease and loanable funds increase
question

The federal government eliminates 401(k) retirement accounts
answer

the supply for real interest rates and loanable funds shift to the left
question

The federal government reduces the tax on corporate profits
answer

the demand for real interest rates and loanable funds shifts to the right
question

What is a lonable fund?
answer

real estate
question

Households supply loanable funds because of the
answer

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
question

An insurance company
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a financial intermediary because they take premiums and use them to purchase financial securities
question

“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.”
answer

Incorrect. The supply of loanable funds is determined by household savings.
question

What is a financial securities that represent promises to repay a fixed amount of funds?
answer

bonds
question

What is not a service that the financial system provides for savers and borrowers?
answer

Guaranteeing savers high rate of return

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