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1、Macroeconomics (Hubbard et al.)Chapter 3 The Financial System3.1 Overview of the Financial System1) One difference between stocks and bonds is thatA) unlike bonds, stocks do not represent a claim on a share in the profits and assets of firms.B) stocks are financial securities and bonds are labor mar
2、ket securities.C) unlike bonds, stocks do not promise to repay a fixed amount of money.D) stocks represent ownership in companies and bonds represent ownership in the government.Answer: CDiff: I Page Ref: 61Topic: Financial Markets and Financial IntermediariesObjective: LOI: Describe the financial s
3、ystem and explain the role it plays in the economy.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring2) One difference between stocks and bonds is thatA) unlike stocks, bonds do not represent a claim on a share in the profits and assets of firms.B) stocks are government-issued securi
4、ties and bonds are financial securities.C) unlike stocks, bonds do not promise to repay a fixed amount of money.D) bonds represent ownership in companies and stocks represent corporate assets.Answer: ADiff: 1 Page Ref: 61Topic: Financial Markets and Financial IntermediariesObjective: LOI: Describe t
5、he financial system and explain the role it plays in the economy.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring3) Institutions that borrow money from savers to lend to borrowers are known asA) financial markets.B) bond brokers.C) financial intermediaries.D) asset exchanges.Answer
6、: CDiff: 1 Page Ref: 61Topic: Financial Markets and Financial IntermediariesObjective: LOI: Describe the financial system and explain the role it plays in the economy.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring4) Which of the following best represents government saving?A) T-(G
7、+TR)B)(r- 77?) + /C)(r-C- G-NX)D)(y+TR)-(C+QAnswer: ADiff: 2 Page Ref: 77Topic: Saving and Supply in the Loanable Funds MarketObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring5) Which of
8、the following best represents total saving?A)T-(G+77?)B)(y- 77?) + /C)(K-C- G-NX)D)(r+77?)-(C+7)Answer: CDiff: 3 Page Ref: 77Topic: Saving and Supply in the Loanable Funds MarketObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB
9、: Reflective Thinking Skills*: Recurring6) The higher the real interest rate, the investment projects firms can profitably undertake, andthe the quantity of loanable funds they will demand.A) more; smallerB) more; greaterC) fewer; greaterD) fewer; smallerAnswer: DDiff: 2 Page Ref: 78Topic: Investmen
10、t and the Demand for Loanable FundsObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Reflective Thinking Skills*: RecurringArticle SummaryFor the fourth time in four months, the Peoples Bank of China raised the reserve require
11、ment for Chinese banks, increasing the rate for the biggest banks to 20.5%. The move is designed to curb inflation, which exceeded the governmenfs target of 4 percent for each of the first four months of 2011. China*s rapidly expanding economy and surging prices have government officials looking at
12、several tightening measures. In addition to raising reserve requirements, the government is looking at adjusting interest rates and the exchange rate for the yuan.Source: Bloomberg News, “China Raises Bank Reserve Ratio for Fourth Time in 2011 to Curb Inflation/9 Bloomberg, April 17, 2011.7) Refer t
13、o the Article Summary. By raising the reserve requirement, the Peoples Bank of China is requiring Chinese banks to hold more of each deposit, resulting in less lending from the banks. Therefore, raising the reserve requirement will the supply of loanable funds in China whichwill the equilibrium real
14、 interest rate.A) increase; raise8) increase; lower9) decrease; raise10) decrease; lowerAnswer: CDiff: 3 Page Ref: 78-79Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets. Specia
15、l Feature: Making the Connection: China Raises Bank Reserve Ratio for Fourth Time in 2011 to Curb InflationAACSB: Reflective Thinking SkillsFigure 3.18) Refer to Figure 3.1. All else equal, a decrease in the governments budget deficit will causeA) a shift from S to SzB) a shift from S2 to S1.C) a ch
16、ange in the interest rate from to r.D) a change in loanable funds from L2 to L.Answer: ADiff: 2 Page Ref: 80Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: no
17、neAACSB: Analytic Skills*: Recurring9) Refer to Figure 3,1, A shift from S to S2 will result from all of the following exceptA) a decrease in the governments budget deficit.B) a decrease in net exports.C) a decrease in corporate taxes.D) a decrease in the desire of households to consume today.Answer
18、: CDiff: 2 Page Ref: 80Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Analytic Skills*: Recurring10) Refer to Figure 3.1. A shift from S? to S| wi
19、ll result from which of the following?A) an increase in expected future profitsB) an increase in net exportsC) a decrease in corporate taxesD) an increase in tax credits for savingsAnswer: BDiff: 2 Page Ref: 80Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO
20、3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Analytic Skills*: Recurring11) Refer to Figure 3.2. A shift from 2 to D will result from which of the following?A) an increase in expected future profitsB) an increase in net exportsC) an i
21、ncrease in corporate taxesD) a decrease in tax credits for savingsAnswer: CDiff: 2 Page Ref: 80Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Anal
22、ytic Skills*: Recurring12) Refer to Figure 3.2. A shift from D to 2 will result from which of the following?A) an increase in expected future profitsB) an increase in corporate taxesC) an increase in tax credits for savingsD) a decrease in the desire of households to consume todayAnswer: ADiff: 2 Pa
23、ge Ref: 80Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Analytic Skills*: RecurringReal interest rate (percent)Figure 3.3Loanable funds (dollars
24、per year)13) Refer to Figure 3.3. All else equal, an increase in the governments budget deficit accompanied by a decrease in corporate taxes would cause which of the following shifts?A) Si to S2 and Dj to。2B) S2 to Si and D to D?C) Si to S2 and。2 to DD) S210 sl and D? to DAnswer: BDiff: 2 Page Ref:
25、81-82Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: Solved Problem 3.3: Using the Loanable Funds Model to Analyze the U.S. Economy in 2010AACSB: Analytic Ski
26、lls14) Refer to Figure 3.3. All else equal, a decrease in the desire of households to consume today accompanied by an increase in corporate taxes would cause which of the following shifts?A) 51 to S2 and D to 2B) 52 to S and D to 2C) 51 to 52 and D? to DD) 52 to 51 and )2 to DAnswer: CDiff: 2 Page R
27、ef: 81-82Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: Solved Problem 3.3: Using the Loanable Funds Model to Analyze the U.S. Economy in 2010AACSB: Analytic
28、 Skills15) Refer to Figure 3.3. All else equal, an increase in net exports accompanied by a decrease in expected future profits would cause which of the following shifts?A) Si to S2 and D to 2B) S2 to Si and D to 9C) Si to S2 and 2 to DD) S2 to Si and。2 to DAnswer: DDiff: 2 Page Ref: 81-82Topic: Exp
29、laining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: Solved Problem 3.3: Using the Loanable Funds Model to Analyze the U.S. Economy in 2010AACSB: Analytic Skills16) All else
30、 equal, an increase in the governments budget deficit accompanied by a decrease in corporate taxes would definitely result inA) an increase in the equilibrium real interest rate.B) a decrease in the equilibrium real interest rate.C) an increase in the equilibrium level of saving and investment.D) a
31、decrease in the equilibrium level of saving and investment.Answer: ADiff: 2 Page Ref: 81-82Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: Solved Problem 3.3:
32、 Using the Loanable Funds Model to Analyze the U.S. Economy in 2010AACSB: Analytic Skills17) All else equal, an increase in net exports accompanied by a decrease in expected future profits would definitely result inA) an increase in the equilibrium real interest rate.B) a decrease in the equilibrium
33、 real interest rate.C) an increase in the equilibrium level of saving and investment.D) a decrease in the equilibrium level of saving and investment.Answer: DDiff: 2 Page Ref: 81-82Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and re
34、al interest rates are determined in financial markets.Special Feature: Solved Problem 3.3: Using the Loanable Funds Model to Analyze the U.S. Economy in 2010AACSB: Analytic Skills18) According to the article in the An Inside Look feature, the credit market has been easing for small businesses, yet m
35、ost businesses arc not trying to borrow. All else equal, these two developments in the loanable funds market would definitelyA) increase the equilibrium real interest rate.B) decrease the equilibrium real interest rate.C) increase the equilibrium level of saving and investment.D) decrease the equili
36、brium level of saving and investment.Answer: BDiff: 2 Page Ref: 94-95Topic: Explaining Movements in Saving, Investment, and the Real Interest RateObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: An Inside Look: Credit Market Easing for
37、Small BusinessesAACSB: Reflective Thinking Skills19) When nominal interest rates increase, the opportunity cost of holding money will, and the quantity of money demanded by households and firms will.A) increase; increaseB) increase; decreaseC) decrease; increaseD) decrease; decreaseAnswer: BDiff: 2
38、Page Ref: 82Topic: The Money Market ModelObjective: LO3: Explain how nominal and real interest rates are determined in financial markets.Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring20) The money demand curve will shift to the left if real GDP or if the price level.A) increases;
39、 increasesB) increases; decreasesC) decreases; increasesD) decreases; decreasesAnswer: DDiff: 2 Page Ref: 83Topic: Shifts in the Money Demand CurveObjective: LO3: Explain how nominal and real interest rates are determined in financial markets. Special Feature: noneAACSB: Reflective Thinking SkillsE)
40、 Recurring21) Explain the differences between the loanable funds market and the money market.Answer: The loanable funds market shows the equilibrium quantity of loanable funds, where saving equals investment, and the equilibrium real interest rate, which occurs at the intersection of the supply curv
41、e for loanable found and the demand curve for loanable funds. The money market shows the equilibrium quantity of money and the equilibrium nominal interest rate, which occurs at the intersection of the money supply curve and the money demand curve. Interest rates are determined in each market, but t
42、he loanable funds model has proven to be more useful in determining long-term real interest rates, and the money market model has proven to be more useful when determining short-term nominal interest rates.Diff: 2 Page Ref: 76-77, 82Topic: Determining Interest Rates: The Market for Loanable Funds an
43、d the Market for Money Objective: LO3: Explain how nominal and real interest rates are determined in financial markets. Special Feature: noneAACSB: Reflective Thinking Skills*: Recurring22) Suppose the federal government is successful in reducing the budget deficit, households decide to increase the
44、ir saving, corporate taxes are reduced, and businesses expect to see an increase in future profits. Use the loanable funds model to explain how each of these events affects the demand and supply of loanable funds and illustrate your answer with a graph. Describe what should happen to the equilibrium
45、 real interest rate and the equilibrium levels of saving and investment?Answer: The reduction in the budget deficit and the increase in household saving will increase the supply of loanable funds, shifting the supply curve to the right. The decrease in corporate taxes and increase in expected future
46、 profits will increase the demand for loanable funds, shifting the demand curve to the right. The increase in supply will result in a decrease in the equilibrium real interest rate and an increase in the equilibrium levels of saving and investment. The increase in demand will result in an increase i
47、n the real equilibrium interest rate and an increase in the equilibrium levels of saving and investment. Therefore, when both supply and demand increase, the equilibrium levels of saving and investment should definitely increase, and the equilibrium real interest rate may increase, decrease, or rema
48、in unchanged, depending on the magnitude of the shifts in demand and supply. In the figure below, the supply shift is greater than the demand shift, so the equilibrium real interest rate decreases.Real interest rate (percent)Loanable funds (dollars per year)Diff: 2 Page Ref: 81-82Topic: Explaining Movements in Saving, Investment, and t