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Glossary
Knowledge Check
Which is responsible for setting the interest rate borrowers pay for a loan?

A. The government

B. Banks

C. Supply and demand

D. How much money is available to lend

If people were to save more money, how would real interest rates be affected?

A. Interest rates would rise due to the increase in demand.

B. Interest rates would fall due to the decrease in demand.

C. Interest rates would fall due to the increase in supply.

D. Interest rates would rise due to the decrease in supply.

If people were to save more money, how would investment spending be affected in a closed economy?

A. Companies would buy more stocks.

B. Companies would buy more tools and equipment.

C. Companies would reduce their spending on tools and equipment.

D. Companies would buy more bonds.

According to the paradox of thrift:

A. Increased spending would generate economic activity and job creation.

B. Increased spending would decrease the interest rates for loanable funds.

C. Increased spending would also increase saving.

D. Increased spending would increase the unemployment rate.