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Understanding Interest Rates Determinants
Understanding Interest Rates Determinants MCQs
?
According to the loanable funds framework, the equilibrium interest rate is determined by
the Bank of Canada.
the Chartered Banks when setting their prime lending rate.
the interaction between the amount available for investment by lenders and the volume of stock issued by publicly traded companies.
the interaction between the amount available for investment by lenders and the volume of bonds desired by borrowers.
?
Which of the following expressions are equivalent within the loanable funds framework?
Bond demand = Supply of loanable funds.
Bond demand = Demand for loanable funds.
Bond supply = Supply of loanable funds
Bond supply = Bond demand.
?
In market equilibrium in the loanable funds market
Bonds demanded = Loanable funds supplied.
Bonds demanded = Bonds supplied.
Loanable funds demanded = Loanable funds supplied.
B) and C)
?
Within the loanable funds framework, if the market interest rate exceeds the equilibrium interest rate, then
the volume of loanable funds demanded exceeds the volume of loanable funds supplied and interest rates will tend to fall.
the volume of loanable funds supplied exceeds the volume of loanable funds demanded and interest rates will tend to increase.
the volume of loanable funds demanded exceeds the volume of loanable funds supplied and interest rates will tend to increase.
the volume of loanable funds supplied exceeds the volume of loanable funds demanded and interest rates will tend to fall.
?
Which of the following will not cause an increase in the demand for loanable funds?
An increase in the anticipate rate of return.
An increase in interest rates.
An increase in government deficits.
An increase in the expected rate of inflation.
?
Among the following situations, which one results in an unambiguous increase in the rate on interest?
A simultaneous increase in the demand and supply of loanable funds.
A simultaneous decrease in the demand and supply of loanable funds.
An increase in the demand for loanable funds combined with a decrease in the supply of loanable funds.
A decrease in the demand for loanable funds combined with an increase in the supply of loanable funds.
?
Among the following situations, which one results in an unambiguous increase in the price of a bond?
A simultaneous increase in the demand and supply of bonds.
A simultaneous decrease in the demand and supply of bonds.
An increase in the demand for bonds combined with a decrease in the supply of bonds.
A decrease in the demand for bonds combined with an increase in the supply of bonds.
?
Among the following situations, which one results in an unambiguous increase in the price of a bond?
A simultaneous increase in the demand and supply of loanable funds.
A simultaneous decrease in the demand and supply of loanable funds.
An increase in the demand for loanable funds combined with a decrease in the supply of loanable funds.
A decrease in the demand for loanable funds combined with an increase in the supply of loanable funds.
?
Lets say that investors anticipate an economic expansion in the near future, this will result in
the demand curve for bonds to increase.
the demand for loanable funds to increase.
a downward movement from left to right along the demand curve for bonds.
an increase in the supply of loanable funds.
?
Which of the following will not cause an increase in the supply for loanable funds?
An increase in the rate of return of gold holdings, a substitute for bonds.
An increase in wealth.
A decrease in the relative riskiness of bonds.
A decrease in the expected inflation rate.
?
Interest rates will tend to decline
if expected inflation increases.
the degree of liquidity of bonds decreases.
the relative returns of bonds decrease.
the degree of liquidity of bonds increases.
?
An decrease in the relative riskiness of bonds while the government increases its borrowing because of mounting deficits
will lead to an unambiguous increase in interest rates.
will lead to an unambiguous decrease in interest rates.
there is insufficient information to infer about the effects on interest rates.
will never have any effect on interest rates.
?
The Fisher effect states that
interest rates and inflation tend to move in the opposite direction.
interest rates and inflation tend to move in the same direction.
there is no empirical evidence showing a relationship between inflation and interest rates.
there is a negative relationship between bond prices and interest rates.
?
The liquidity preference approach distinguishes itself from the loanable funds approach because
the former is based on the desire to hold cash as opposed to holding bonds for the latter approach.
the former is based on the desire to hold bonds as opposed to holding cash for the latter approach.
the former is based on peoples desire for liquid assets whilst the latter is based on peoples need for loans.
the former is based on peoples willingness to maintain a certain degree of liquidity whilst the former is based on peoples needs for loans.
?
According to the Liquidity preference theory any changes in the stock of bonds
is exactly offset by changes in the supply of loanable funds.
is exactly offset by changes in the demand of loanable funds.
is exactly offset by changes in the money stock.
is exactly offset by an increased demand for money
?
According to the Liquidity preference theory, which of the following do not explain why people hold money?
transaction motive.
nominal Income motive.
precautionary motive.
speculative motive.
?
The speculative motive means that people hold money because
of the desire to prepare for unforeseen expenditures.
of the existence of the opportunity cost of holding money.
it is needed to purchase goods and services.
of constant increases in real income.
?
Higher interest rates
encourage people to spend more.
decreases the opportunity cost of holding money.
increases the demand for money.
increase the volume of money supplied.
?
The only economic agent that influence the supply of money are
the Bank of Canada.
the Chartered Banks.
the general public.
All of the above.
?
A decrease in the money supply will cause
interest rates to fall.
interest rates to increase.
has no effect on interest rates.
the equilibrium money stock to rise.
