1- In the market for loanable funds: Select one: a. banks supply loanable funds

Question

1-

In the market for loanable funds:

Select one:

a. banks supply loanable funds and the government demands loanable funds.

b. both savers and borrowers supply and demand loanable funds.

c. savers demand loanable funds and borrowers supply loanable funds.

d. savers supply loanable funds and borrowers demand loanable funds.

2-

When bond prices increase, interest rates:

Select one:

a. must increase.

b. must decrease.

c. will not change.

d. will first increase and then decrease.

3-

Why is the demand for loanable funds downward sloping?

Select one:

a. People save less when the interest rate is low.

b. More people borrow money when interest rates are low than when they are high.

c. Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates.

d. People save more when the interest rate is high.

4-

China has a higher saving rate than the United States. One economic explanation for this fact is that:

Select one:

a. Americans are more irrational than the Chinese.

b. Americans are more rational than the Chinese.

c. there is a lower rate of time preference for Americans than for the Chinese.

d. there is a higher rate of time preference for Americans than for the Chinese.

5-

According to the life cycle theory of savings, a typical person's:

Select one:

a. saving is smooth over their entire lifetime.

b. consumption is smooth over their entire lifetime.

c. consumption in a given year is related to their income in that year.

d. saving is the highest when they die.

Explanation / Answer

ANS 1: correct option is d

in the market for loanable funds it is the savers always that supply loanable funds( because they have surplus money )and borrowers who demand loanable funds( because they are short of money for investments )

ans 2. correct option is b.

when bond prices increase interest rates must decrease as we all know that the two have an inverse relationship.

ans3. correct option is b

the demand for loanble funds is downward sloping because we know that people will only borrow more when interest rates are lower and in the loanable funds graph y axis is interest rate and x axis is loanable fund so, if more has to be borrowed interest rate has to fall.

ans 4. correct option is d

chinese have a high savings rate than US it is because they have higher time prefrence for future consumption and hence they save more.this implies that americans have high time prefrence for current consumption.

ans 5 . correct option is a

according to life cycle theory of savings, saving that a person makes is smooth over his entire lifetime similar to the way consumption is smooth over a person lifetime according to life cycle theory of consumption

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