ECON 214 Test 2 Actual Latest set with
Questions and correct/verified Answers
What does the business cycle measure? - ANSWER-short term fluctuations in economic activity
Your nominal wages increases by 10% and the overall level increases by 12%. What does this statement
tell you? - ANSWER-If you feel richer, you are experiencing money illusion
What is the interest rate? - ANSWER-the proportion of a loan that is charged as interest to the borrower,
typically expressed as an annual percentage of the loan outstanding
What is the interest rate formula? - ANSWER-A=P(1+rt)
P= initial investment
r= interest rate per period
t=number of periods
What is the nominal (money/market) interest rate formula? - ANSWER-real interest rate + inflation rate
What is the real interest rate (r)? - ANSWER-money interest rate - inflationary rate
What are loanable funds? - ANSWER-the market where savers (lenders) supply funds for loans to
borrowers
What verse talks about loanable funds and lenders? - ANSWER-John 6:12
What are factors that affect the supply of loanable funds? - ANSWER-a. income (+)
b. time preference (-)
c. consumption smoothing
d. monetary policy (Federal Reserve)
What are factors that affect the demand for loanable funds? - ANSWER-a. productivity of capital (+)
b. investor confidence (+)
What are the 4 reasons why interest rates change? - ANSWER-1. a decrease in the demand for loanable
funds
2. an increase in the demand for loanable funds
3. a decrease in the supply of loanable funds
4. an increase in the supply of loanable funds
What are financial markets? - ANSWER-where financial assets are exchanged or traded
What is an asset? - ANSWER-it is an intangible possession that has value in an exchange; also has legal
claims for some future benefits
Explain direct financing - ANSWER-lenders pay money to the borrowers, and the borrowers send the
securities back to the lenders
Explain indirect financing - ANSWER-lenders pay money to financial institutions (banks) and then that
goes to the securities which go back to the lenders; the financial institutions pay money to the borrowers
and then securities go back to the financial institutions
What are financial instruments? - ANSWER-a. corporate bonds
b. stocks
c. treasury securities
Questions and correct/verified Answers
What does the business cycle measure? - ANSWER-short term fluctuations in economic activity
Your nominal wages increases by 10% and the overall level increases by 12%. What does this statement
tell you? - ANSWER-If you feel richer, you are experiencing money illusion
What is the interest rate? - ANSWER-the proportion of a loan that is charged as interest to the borrower,
typically expressed as an annual percentage of the loan outstanding
What is the interest rate formula? - ANSWER-A=P(1+rt)
P= initial investment
r= interest rate per period
t=number of periods
What is the nominal (money/market) interest rate formula? - ANSWER-real interest rate + inflation rate
What is the real interest rate (r)? - ANSWER-money interest rate - inflationary rate
What are loanable funds? - ANSWER-the market where savers (lenders) supply funds for loans to
borrowers
What verse talks about loanable funds and lenders? - ANSWER-John 6:12
What are factors that affect the supply of loanable funds? - ANSWER-a. income (+)
b. time preference (-)
c. consumption smoothing
d. monetary policy (Federal Reserve)
What are factors that affect the demand for loanable funds? - ANSWER-a. productivity of capital (+)
b. investor confidence (+)
What are the 4 reasons why interest rates change? - ANSWER-1. a decrease in the demand for loanable
funds
2. an increase in the demand for loanable funds
3. a decrease in the supply of loanable funds
4. an increase in the supply of loanable funds
What are financial markets? - ANSWER-where financial assets are exchanged or traded
What is an asset? - ANSWER-it is an intangible possession that has value in an exchange; also has legal
claims for some future benefits
Explain direct financing - ANSWER-lenders pay money to the borrowers, and the borrowers send the
securities back to the lenders
Explain indirect financing - ANSWER-lenders pay money to financial institutions (banks) and then that
goes to the securities which go back to the lenders; the financial institutions pay money to the borrowers
and then securities go back to the financial institutions
What are financial instruments? - ANSWER-a. corporate bonds
b. stocks
c. treasury securities
