Question

10. The real interest rate is the
(x) real rate of return to the lender.
(y) real cost of borrowing to the borrower.
(z) nominal interest rate plus the rate of inflation.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

13. If there is a shortage of loanable funds, then
A. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate falls to equilibrium.
B. neither curve shifts, but the quantity of loanable funds supplied increases and the quantity demanded decreases as the interest rate rises to equilibrium.
C. neither curve shifts, but the quantity of loanable funds supplied decreases and the quantity demanded increases as the interest rate rises to equilibrium.
D. the supply of loanable funds shifts right and the demand shifts left.
E. the supply of loanable funds shifts left and the demand shifts right.

Answer 1

Q-10) option B)

As i = r + π

So, r = i - π

So z is false

X & y are true

Q11) option B)

Shortage of funds imply, that demand > supply

So interest rate will rise, till demand falls & supply rises to restore eqm