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41.A change from an income tax to a value added tax on consumption

a.should decrease the supply of loanable funds.

b.would decrease the demand for loanable funds.

c.should increase the supply of loanable funds.

d.should shift consumers' preferences toward consumption.

42.An increase in income tax rates

a.will decrease the savings rate.

b.will decrease the supply of loanable funds.

c.will increase interest rates.

d.all of the above.

43.Economies with very high current and expected inflation rates

a.will have a significant long-term debt market.

b.will have debt instruments with interest rates indexed to the inflation rate.

c.will favor long-term financing over short-term.

d.will have very low interest rates.

44.All but one of the following is associated with economies with very high inflation rates?

a.Very few people who wish to borrow at a fixed rate.

b.Little if any long-term debt market.

c.Variable interest rate loans.

d.Reliance on short-term debt contracts.

45.With the real rate at 3 percent, most loans were made at 10 percent last year.  This year interest rates have declined to 8 percent.  What was the expected inflation rate last year?

a.  5%

b.  2%

c.  7%

d.  8%

46.Interest rates move ______ with expected inflation; _____ with economic activity.

a.  directly/inversely

b.  inversely/inversely

c.  directly/directly

d. inversely/directly

47.Interest rates represent

a.  allocational forces

b.penalties for early consumption

c.rewards for deferring consumption

d.all of the above

48.Which of the following actions will reduce the interest rate risk of the lender?

a.Make fixed interest rate loans.

b.Make fixed interest rate, long-term loans.

c.Make variable interest rate loans.

d.Invest in fixed rate Treasury bonds.

49.An investor loaned money at 14 percent with an expected rate of inflation of 11 percent.  During the year the actual rate of inflation was 8 percent.  The investor's expected real rate of interest was _____ and the realized real rate for the investor was ______?

a.14 percent; 8 percent.

b.6 percent; 3 percent.

c.3 percent; 3 percent.

d.3 percent; 6 percent.

50.An investor purchased a $1000 face value bond for $925.  The bond has an 8 percent coupon rate, paid annually, and matures in five years.  The investor sold the bond one year later for $965, while the price level was increasing at 5 percent.  Calculate the pre-tax real realized rate of return on the investment?

a. -.7%

b. 8%

c.  3%

d.  5%

51. What is NOT an economic factor that cause a shift in the desired lending curve changes the equilibrium rate of interest?

a.Federal Reserve increases in the money supply

  1.                 Business savings
  2.                 Government budget surpluses
  3.                 Consumer credit purchases

52.You go to Finance Yahoo! Website and find that yields on all corporate and Treasury                             securities have increased.  The yield increases may be explained by which one of the                                          following:

a.  A decrease in current and expected future returns of real corporate investments

b. Newly expected increase in the value of the dollar

c.  An increase in U.S. inflationary expectations

d.  Decreases in the U.S. Government budget deficit

53. On August 7, 2011, Standard and Poors (S&P) announced a downgrade of the rating of the U.S. long-term government debt from AAA to AA+. If other things are equal, what is the impact on the yields on the Treasury securities?

a.Yields increase

  1.                 Yields decrease
  2.                 Yield unchanged

54. If everything is equal, the most likely impact of a decrease in income tax rates on                                           economy would be to

a.  Decrease the supply of loanable funds

b.  Increase the savings rate

c. Increase interest rates

d.Federal Reserve decreases in the money supply



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