Chapter 4:
What Determines Interest Rates?
Money, Banking,
and Financial Markets
What Determines Interest Rates?
Learning Objectives
This chapter introduces you to:
The factors that determine interest rates
The loanable funds theory of interest rates
T

1. Which of the following is the
most fundamental issue that
economics addresses?
a. Choice of appropriate
technology
b. Reduction of unemployment
c. Reduction of budget deficit
d. Promotion of privatization
e. Use of scarce resources
2. Inflation occurs

Chapter 14
1.
Suppose that country A and country B have the same rate of money growth, and velocity is
constant in both. Output growth is higher in country A. How do country As and country Bs inflation rate
compare?
A.
Country As inflation rate is higher

1. Some U.S. companies have one-year terms for directors. The entire corporate board must run for
election at each annual meeting. Other companies have three-year terms; only a third of
directors face votes at each meeting. A 2004 study found that the com

1. IF R = 680 ; C= 320 ; D = 1280 ; L= 600 on Wednesday ; then the bank decides to lend 360 on
Thursday , such that L = 960 ; R = 320 ; C = 680 ; D=1280. Continue with the same logic what are
the Monetary Base and the Money Supply, R, C , D , and L ; for

1. IF R = 680 ; C= 320 ; D = 1280 ; L= 600 on Wednesday ; then the bank decides to lend 360 on
Thursday , such that L = 960 ; R = 320 ; C = 680 ; D=1280. Continue with the same logic what are
the Monetary Base and the Money Supply, R, C , D , and L ; for

Chapter 6 due Tuesday FEB 16
1.
Suppose it takes $1.05 to buy one euro. What does this mean?
A.
The dollar is more valuable than the euro.
B.
The euro is more valuable than the dollar.
C.
It takes 0.9524 euros to buy one dollar.
D.
The euro is stronger th

Ch 12
1.
Suppose potential output grows 2 percent per year and the natural rate of unemployment is
constant at 6 percent. In 2020, the unemployment rate is 7 percent. Assuming Okuns law holds true,
what is the output gap in 2020 and what is the unemployme