7. If the interest rate in the market forloanable funds is above the equilibrium

Question

7. If the interest rate in the market forloanable funds is above the equilibrium interest rate, we know that_______. (Points: 1)
      there is a shortage of loanable funds
       savings exceed investmentspending
       the quantity demanded ofloanable funds exceeds the quantity supplied of loanablefunds
       consumption is smaller thansavings


8. Crowding out means _______. (Points:1)
       private savings decreaseswhen the government borrows
       private investmentdecreases when the government borrows
       there are too many playersin the financial markets
       some bond holders will besqueezed out of the market


9. One way to reduce financial risk is_______. (Points: 1)
       to only buy stock in amajor company
       to only buy bonds in amajor company
       to diversify in a varietyof assets, both financial and physical
       to diversify in a number ofbanks


10. The most important driver for economicgrowth appears to be _______. (Points: 1)
       more physicalcapital
       more humancapital
       progress intechnology
       all of theabove

Explanation / Answer

7. When the interest rate is above the equilibrium level,there will be more money available than people wish to hold.   The answer is c) the quantitydemanded of loanable funds exceeds the quantity supplied ofloanable funds. 8. Crowding out is a reduction in private consumtion orinvestment that occurs because the government increases it'sspendings. The answer is b) private investmentdecreases when the government borrows 9. The safests bet is to diversify. Even better to diversifyin physical and finicial investments. The asnwer isc)  to diversify in a variety ofassets, both financial and physical. 10. Each answer is an important driver for economicgrowth. If your professor or book put more emphasis on one, I wouldchoose that one. I would say, with what I know, the answer shouldbe d) all of the above.

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