1. What is an example of impatience in economic behavior? a. Taking the first job you are offered...

Question:

1. What is an example of impatience in economic behavior?

a. Taking the first job you are offered

b. Insisting on getting a physical exam every year

c. Asking for your grade right after finishing a test

d. Each of these answers are correct

2. The life cycle theory of savings predicts individuals will save during:

a. All phases of life

b. The later years of life

c. The middle years of life

d. The early years of life

3. Why is the demand for loanable funds downward sloping?

a. People save less when the interest rates are low

b. More people borrow money when interest rates are low than when they are high

c. Fewer investment projects have returns that can beat higher interest rates, so people are more willing to invest at higher interest rates

d. Each of these answers are correct

4. The demand to borrow function shows the relationship between borrowing money and:

a. Consumption

b. Income

c. Age

d. The interest rate

Loanable Funds' Doctrine:

In the theory of market interest rates, the loanable funds' doctrine dictates how the interest rates are determined by the forces of demand and supply of loanable funds. It is argued that the equilibrium interest rate is affected by the propensities to save and invest as well as the creation or destruction of credit and fiat money.

Answer and Explanation:

Ans. 1. a. Taking the first job you are offered

The decision-making process in economics advocates a rational behavior in which a careful evaluation and analysis of all the alternatives are made in order to reach the optimal state where the benefit is maximized. Taking the first job which you have been offered is an example of impatience in economic behavior as the decision-maker is not waiting to have alternatives.

Ans. 2. d. The early years of life

The life-cycle hypothesis in economic theory proposes that it is the tendency of the consumers to even out their consumption through the course of their lifetimes by saving proportions of their income in the early periods and dis-saving later when they are not working.

Ans. 3. b. More people borrow money when interest rates are low than when they are high

The demand curve for loanable funds is downward sloping as low-interest rates indicate a low cost of borrowing at which the demand for funds is high and more people borrow money at low-interest rates compared to when the interest rates are high.

Ans. 4. d. The interest rate

The borrowing function shows the relationship between the act of borrowing money and the interest rate. The interest rate is the cost of borrowing money. Consumers prefer to borrow funds when the cost is low.


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Loanable Funds: Definition & Theory

from Introduction to Business: Homework Help Resource

Chapter 25 / Lesson 29
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