AP®︎ Macroeconomics: Topic 4.7 Practice Test
Prepare for your quiz, test, or the AP exam with focused practice questions on Topic 4.7 of AP Macroeconomics – The Loanable Funds Market.
Questions List
Topic 4.7
Question 1 Easy
This question tests the following: MKT-4.A
What is the main function of the loanable funds market?
What You’re Being Tested On:
Explore the learning objectives taken directly from the College Board’s AP® Macroeconomics Curriculum. Ensure you’re prepared for the exact topics covered on the AP® exam, in-class tests, and quizzes, and gain confidence in your mastery of the material.
Topic 4.7: The Loanable Funds Market
Learning Objective: MKT-4.A
a. Define (using graphs as appropriate) the loanable funds market, demand for loanable funds, and supply of loanable funds. b. Explain (using graphs as appropriate) the relationship between the real interest rate and the quantity of loanable funds demanded (supplied).
Essential Knowledge: MKT-4.A.1
The loanable funds market describes the behavior of savers and borrowers.
Essential Knowledge: MKT-4.A.2
The demand for loanable funds shows the inverse relationship between real interest rates and the quantity demanded of loanable funds.
Essential Knowledge: MKT-4.A.3
The supply of loanable funds shows the positive relationship between real interest rates and the quantity supplied of loanable funds.
Learning Objective: MKT-4.B
Define national savings in both a closed and an open economy.
Essential Knowledge: MKT-4.B.1
In the absence of international borrowing and lending, national savings is the sum of public savings and private savings.
Essential Knowledge: MKT-4.B.2
For an open economy, investment equals national savings plus net capital inflow.
Learning Objective: MKT-4.C
Define (using graphs as appropriate) equilibrium in the loanable funds market.
Essential Knowledge: MKT-4.C.1
In the loanable funds market, equilibrium is achieved when the real interest rate is such that the quantities demanded and supplied of loanable funds are equal.
Learning Objective: MKT-4.D
Explain (using graphs as appropriate) how real interest rates adjust to restore equilibrium in the loanable funds market.
Essential Knowledge: MKT-4.D.1
Disequilibrium real interest rates create surpluses and shortages in the loanable funds market. Market forces drive real interest rates toward equilibrium.
Learning Objective: MKT-4.E
a. Explain (using graphs as appropriate) the determinants of demand and supply in the loanable funds market. b. Explain (using graphs as appropriate) how changes in demand and supply in the loanable funds market affect the equilibrium real interest rate and equilibrium quantity of loanable funds.
Essential Knowledge: MKT-4.E.1
The loanable funds market can be used to show the effects of government spending, taxes, and borrowing on interest rates.
Essential Knowledge: MKT-4.E.2
Factors that shift the demand (such as an investment tax credit) and supply (such as changes in saving behavior) of loanable funds change the equilibrium interest rate and the equilibrium quantity of funds.
