Question

Which of the following would be most likely to increase the supply of loanable funds and lead to low interest rates?

a. Expansionary monetary policy that resulted in high rates of inflation.

b. Constant policy shifts that generate uncertainty and reduce investment.

c. Demographic shifts that increase the number of people in age categories with high saving rates relative to the number in age categories with a strong demand for loanable funds.

d. Large budget deficits that push the government debt to GDP ratio to a high level. In defining the money supply (M1), economists exclude savings deposits because a. the purchasing power of savings deposits is much less stable than that of checkable deposits and currency. b. savings deposits are a form of investment and, thus, a better store of value than money. c. savings deposits are liabilities of commercial banks, whereas checkable deposits are assets of the banks. d. savings deposits are not generally used as a means of payment. In response to the recession of 2008-2009, the United States a. increased government spending as a share of the economy and enlarged the size of the budget deficit. b. reduced government spending as a share of the economy and shifted the budget toward a surplus. c. increased government spending as a share of the economy and shifted the budget toward a surplus. d. reduced government spending as a share of the economy and enlarged the size of the budget deficit.

Answer 1

1) c.

Demographic shifts that increase the number of people in age categories with high saving rates relative to the number in age categories with a strong demand for loanable funds.

2) d

Savings are not used as a medium of exchange and hence is not included in M1

3) a

To combat recession government spending increased which leads to increase in budget deficit.