Quiz chapter 4 - The level of Interest Rates Flashcards Preview

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Flashcards in Quiz chapter 4 - The level of Interest Rates Deck (19):
1

1. Interest rate is the cost of borrowing someone else's money (which must be returned to the lender at a later date), for its purchasing power now.
a. True
b. False

T

2

2. The interest rate paid on savings depends on the rate of return producers can expect to earn on investment capital and savers' time preference for current over future consumption.
a. True
b. False

T

3

3. The market rate of interest can be viewed as the real rate of interest plus a premium for the expected rate of inflation.
a. True
b. False

T

4

4. Declining interest rates can be caused by an upward shift in the demand for loanable funds relative to the supply of loanable funds.
a. True
b. False

F

5

5. Households are net demanders of funds, whereas the business sector is a net supplier of funds.
a. True
b. False

F

6

6. The realised real rate of interest can be negative if expected inflation is less than actual inflation.
a. True
b. False

T

7

7. An increase in the level of interest rates may be accomplished by either an increase in the supply of or a reduction in the demand for loanable funds.
a. True
b. False

F

8

8. Price-level changes affect both the realised return that lenders receive on their loans and the cost that borrowers must pay for them.
a. True
b. False

T

9

9. Interest rates are directly related to inflation expectations and inversely related to the level of economic activity. a. True
b. False

F

10

10. An upward shift in the supply of loanable funds is likely to increase interest rates.
a. True
b. False

F

11

11. An increase in rates of return on real capital investment will increase real interest rates.
a. True
b. False

T

12

The Fisher equation suggests that a negative interest rate could occur when the expected rate of deflation (a negative term) exceeds the real rate of interest
a. True
b. False

T

13

13. Realised rate of return is the nominal rate of return on an investment adjusted for the actual rate of inflation that occurred after the investment was undertaken.
a. True
b. False

T

14

14. Nominal rates generally exceed the real rate.
a. True
b. False

T

15

15. The Fisher Effect holds that nominal interest rates include an expected inflation rate.
a. True
b. False

T

16

16. Economic models and flow-of-funds are two ways of forecasting interest rates. a. True
b. False

T

17

17. Islamic banking systems use real interest rates to price loans.
a. True
b. False

F

18

18. The flow of funds forecasting method utilises the concept of supply and demand of loanable funds.
a. True
b. False

T

19

19. Interest rate forecasting using economic models assumes that financial markets are very efficient.
a. True
b. False

F