Question

Four fundamental factors affect the supply of, and demand for, investment capital, hence the -Select-amountcostdesirabilityItem 1 of money. These factors are: production opportunities, time preferences for consumption, risk, and inflation. If the entire population was living at the subsistence level, time preferences for current consumption would be -Select-highlowItem 2 , savings would be -Select-highlowItem 3 , interest rates would be -Select-highlowItem 4 , and capital formation would be -Select-easydifficultItem 5 . Producers' expected returns on their business investments set a(n) -Select-lowerupperItem 6 limit on how much they can pay for savings, while consumers' time preferences for consumption establish how much consumption they are willing to delay, and, consequently, how much they will -Select-spendsaveItem 7 at different interest rates. In addition, -Select-lowerhigherItem 8 risk and -Select-lowerhigherItem 9 inflation lead to higher interest rates.

Determine whether each of the statements below is true or false:

Government policy doesn't influence the allocation of capital and the level of interest rates. -Select-TrueFalseItem 10

The supply curve in each market is upward sloping, which indicates that investors are willing to supply more capital the higher the interest rate they receive on their capital. -Select-TrueFalseItem 11

The interest rate in each market is the point where the supply and demand curves for capital intersect. -Select-TrueFalseItem 12

There is a price for each type of capital; however, the price remains constant due to foreign investment. -Select-TrueFalseItem 13

Complete the following statements:

If the Federal Reserve tightens credit, which decreases the supply of funds, interest rates -Select-will increase.will remain constant.will decline.Item 14

If the demand for funds decline, which typically happens during a recession, interest rates -Select-will increase.will remain constant.will decline.Item 15

Four fundamental factors affect the supply of, and demand for, investment capital, hence the of money. These factors are: production opportunities, time preferences for consumption, risk, and inflation. If the entire population was living at the subsistence level, time preferences for current consumption would be , savings would be , interest rates would be , and capital formation would be . Producers' expected returns on their business investments set a(n) limit on how much they can pay for savings, while consumers' time preferences for consumption establish how much consumption they are willing to delay, and, consequently, how much they will at different interest rates. In addition, risk and inflation lead to higher interest rates.

Determine whether each of the statements below is true or false:

Government policy doesn't influence the allocation of capital and the level of interest rates.

The supply curve in each market is upward sloping, which indicates that investors are willing to supply more capital the higher the interest rate they receive on their capital.

The interest rate in each market is the point where the supply and demand curves for capital intersect.

There is a price for each type of capital; however, the price remains constant due to foreign investment.

Complete the following statements:

If the Federal Reserve tightens credit, which decreases the supply of funds, interest rates

If the demand for funds decline, which typically happens during a recession, interest rates

Answer 1

Explanation:-

1.

Four fundamental factors affect the supply of, and demand for, investment capital, hence the -Select-amountcostdesirabilityItem 1 of money. These factors are: production opportunities, time preferences for consumption, risk, and inflation. If the entire population was living at the subsistence level, time preferences for current consumption would be -Select-highlowItem 2 , savings would be -Select-highlowItem 3 , interest rates would be -Select-highlowItem 4 , and capital formation would be -Select-easydifficultItem 5 . Producers' expected returns on their business investments set a(n) -Select-lowerupperItem 6 limit on how much they can pay for savings, while consumers' time preferences for consumption establish how much consumption they are willing to delay, and, consequently, how much they will -Select-spendsaveItem 7 at different interest rates. In addition, -Select-lowerhigherItem 8 risk and -Select-lowerhigherItem 9 inflation lead to higher interest rates.

Determine whether each of the statements below is true or false:

The factors which influence the demand and supply of money, affect the cost of money.
Therefore, Item 1 is Cost.

At the subsistence level, the time preference for current consumption is high. This means
that savings would be low.

Therefore, Item 2 is High, and Item 3 is Low.

Due to the low savings, the interest rates would be high.

Therefore, Item 4 is High.

With the low savings, and high interest rates, capital formation would be low.

Therefore, Item 5 is Low.

An upper limit on producers’ savings is set by their expected return on business investment.
Therefore, Item 6 is Upper.

Consumers’ time preference decide how much they will save.

Therefore, Item 7 is Save.

Also, the higher interest rates maybe caused due to higher risk and higher inflation.

Therefore, Item 8 is Higher, and Item 9 is Higher.

The government policy is responsible for the fluctuations in interest rates, and the
allocation of capital.

Therefore, Item 10 is False.

The upward sloping supply curve shows that investment is directly related with the interest
rates.

Therefore, Item 11 is True.

The equilibrium interest rate is determined at the point where the supply and demand curve
intersect.

Therefore, Item 12 is True.

The price does not remain constant.

Therefore, Item 13 is False.

During credit tightening, the interest rates will increase.

Therefore, Item 14 is will increase.

During recession, due to fall in demand for the funds, interest rates will decline.
Therefore, Item 15 is will decline.

2.

Four fundamental factors affect the supply of, and demand for, investment capital, hence the of money. These factors are: production opportunities, time preferences for consumption, risk, and inflation. If the entire population was living at the subsistence level, time preferences for current consumption would be , savings would be , interest rates would be , and capital formation would be . Producers' expected returns on their business investments set a(n) limit on how much they can pay for savings, while consumers' time preferences for consumption establish how much consumption they are willing to delay, and, consequently, how much they will at different interest rates. In addition, risk and inflation lead to higher interest rates.

Determine whether each of the statements below is true or false:

Government policy doesn't influence the allocation of capital and the level of interest rates;False

The supply curve in each market is upward sloping, which indicates that investors are willing to supply more capital the higher the interest rate they receive on their capital;True

The interest rate in each market is the point where the supply and demand curves for capital intersect;True

There is a price for each type of capital; however, the price remains constant due to foreign investment;False

Complete the following statements:

If the Federal Reserve tightens credit, which decreases the supply of funds, interest rates will increse.

If the demand for funds decline, which typically happens during a recession, interest rates will decline.

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