QUESTION 1 1. If a small open economy reduces its budget deficit, the result wil
ID: 1218373 • Letter: Q
Question
QUESTION 1
1. If a small open economy reduces its budget deficit, the result will be:
a lower domestic real interest rate, but no change in the world real interest rate
a lower world real interest rate, but no change in the domestic real interest rate
no change in either the domestic or world real interest rate
lower domestic and world real interest rates
0.5 points
QUESTION 2
1. An investor who desired the ability to have quick and easy access to cash would prefer to hold which type of asset?
tax free
risky
any form of bond
liquid
0.5 points
QUESTION 3
1. As a result of low interest rates on CDs and the perceived riskiness of alternative investments following the financial crisis of 2007-2009, the bond market was affected in all of the following ways EXCEPT:
higher price of bonds
lower nominal interest rates
higher demand for bonds
higher real interest rates
0.5 points
QUESTION 4
1. As a result of higher expected inflation,
the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.
the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
0.5 points
QUESTION 5
1. In the market for loanable funds, the seller is considered to be
the lender.
the lender or the borrower depending upon whether interest rates are rising or falling.
the borrower.
the lender or the borrower depending upon the use to which the funds are put.
0.5 points
QUESTION 6
1. As wealth decreases, which of the following is likely to account for a smaller fraction of a saver's portfolio?
U.S. government securities
corporate bonds
stocks
cash
Explanation / Answer
1) a
a lower domestic real interest rate, becasue when the country reduces deficit you can be sure that country will have spending cuts, etc. Its inflation will aslo go down resulting in lower real interest rates in longer term. World interest rates will have no effect as economy is smaller.
2) Liquid assets
Liquid assets are something that can be easily encashed. So it is called liquid asset
3) higher real interest rates
Except this everything happened, No one want to pay higher interest rates if demand is so high
4) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
The demand curve for loanable funds increases while supply might decrease due to inflation expectations.
5) the lender or the borrower depending upon the use to which the funds are put.
Becasue in loanable funds who sells the loans is usually a bank that accepts deposits. This is borrower, As you mentioned word seller the seller of these loanable funds is usually the banks.
6) Stocks
Stocks are almost always the fist victim of volatality.
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