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4. Suppose that Parliament were to introduce a new investment tax credit. What would happen in the market for loanable funds?

a. The demand for loanable funds would shift left and interest rates fall.

b. The demand for loanable funds would shift right and interest rates rise.

c. The supply of loanable funds would shift left and interest rates rise.

d. The supply of loanable funds would shift right and interest rates fall.

ANSWER: B

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5. If Canada increases its budget deficit, it will reduce

a. private saving and so shift the supply of loanable funds left.

b. investment and so shift the demand for loanable funds left.

c. public saving and so shift the supply of loanable funds left.

d. None of the above are correct.

ANSWER: C

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6. Crowding out refers to

a. the increase in national saving that occurs when government runs a deficit

b. the decrease in the real interest rates due to government borrowing

c. a reduction in investment spending resulting from government borrowing

d. a decrease in consumption spending resulting from government borrowing

ANSWER: C

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7. For a bank to be profitable, the loans it makes must _____ than the _____ obtaining funds. a. cost more; price of

b. pay less interest; total revenue from

c. make more interest; total cost of

d. be less profitable; total revenue from

ANSWER: C

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