The loanable funds market is:
(i) the market set up by banks to provide loans to households and businesses.
(ii) the aggregate of the bond and stock markets.
(iii) the same as the loan market.
(iv) the aggregate of all the individual financial markets.
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6. If there is a shortage of loanable funds, then
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a. |
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium. |
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b. |
the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium. |
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c. |
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium. |
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d. |
the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium. |
7. We associate the term debt finance with
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a. |
the bond market and we associate the term equity finance with the stock market. |
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b. |
the stock market and we associate the term equity finance with the bond market. |
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c. |
financial intermediaries and we associate the term equity finance with financial markets. |
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d. |
financial markets and we associate the term equity finance with financial intermediaries. |
8. If the demand for loanable funds shifts to the right, then the equilibrium interest rate
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a. |
and the quantity of loanable funds rises. |
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b. |
and the quantity of loanable funds falls. |
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c. |
rises and the quantity of loanable funds falls. |
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d. |
falls and the quantity of loanable funds rises. |
9. Long-term bonds are
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a. |
riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. |
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b. |
riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
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c. |
less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds. |
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d. |
less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds. |
10. Compared to bondholders, stockholders
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a. |
face higher risk and have the potential for higher returns. |
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b. |
face higher risk but receive a fixed payment. |
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c. |
face lower risk and have the potential for higher returns. |
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d. |
face lower risk but receive a fixed payment. |
11. The old adage, 'don't put all your eggs in one basket', is very similar to a modern bit of advice concerning financial matters:
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a. |
Buy low-risk bonds. |
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b. |
Use a medium of exchange. |
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c. |
Diversify. |
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d. |
Intermediate. |
12. A budget surplus is created if
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a. |
the government sells more bonds than it buys back. |
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b. |
the government spends more than it receives in tax revenue. |
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c. |
private saving is greater than zero. |
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d. |
None of the above is correct. |
