1. How familiar
are you with interest rates and financial principles?
2. The
interest rate is the price charged by the owner to rent money to the borrower.
Agree
Disagree
3. Grocer Bob's
bananas were $1.00 a pound several months ago. He could not sell more than 20 pounds
a week. So two months ago Grocer Bob lowered the price to $0.50 per pound. He
sold an average of 100 pounds each week over the following weeks. It looks like
Grocer Bob will now make more profit from banana sales than he has in any recent period.
Agree
Disagree
4. Grocer Bob is so
smart that he lowered the price of bananas to $0.25 per pound a few weeks ago. He
expected to sell 300 pounds per week. Grocer Bob is a wise businessman because he
understands the concept of lowering prices to entice more buyers into his store.
Agree
Disagree
5. When Grocer Bob
lowered the price of bananas to $0.25 per pound he expected to sell 300 pounds. But
Grocer Bob sold only 60 pounds. Perhaps sales fell because people had less desire for
bananas since their appetites got smaller for some unknown reason.
Agree
Disagree
6. When interest rates
were 6% many people borrowed money. When interest rates dropped to 5%
fewer people borrowed money. This may be because fewer people were optimistic about
what they might do with borrowed money to make profits. A decline in borrowing can precede
and even promote development of a business slow down -- a recession.
Agree
Disagree
7. In this scenario,
interest rates may fall to 4% next. If rates do fall, it will indicate that there is
not enough demand for money to support the 5% price to borrow money.
Agree
Disagree
8. Years ago many
people were willing to pay over 7% to borrow money. They were willing to pay 7% for
the chance to deploy borrowed money to reap an even bigger reward. That indicates
that people were optimistic about the potential profit they could make.
Agree
Disagree
9. If people feel
there is a relatively big risk, they may borrow money, but only at a lower rate.
Agree
Disagree
10. If people feel
there is a relatively low risk, they may be willing to borrow money at higher rates.
Agree
Disagree
11. If there is a
recession, rates will go lower because fewer people will borrow money for cars, houses,
business ventures, and invenstments.
Agree
Disagree
12. If there is a
recession, rates will go lower because fewer consumers will buy products and
services. This implies fewer people will need to be employed manufacturing products
and providing services to those fewer customers.
Agree
Disagree
13. If there are fewer
customers and fewer workers earning wages, the decreased buying power and demand will lead
to lower prices for many products and services.
Agree
Disagree
14. If prices
continue to fall, even fewer people will be working, there will be even fewer potential
customers with even less money to spend. This is deflation.
Agree
Disagree
15. In a deflationary
environment, the demand for investment capital from the stock market is lower. This
implies stock prices may be lower since already issued stock will be in less demand.
Agree
Disagree
16. This deflationary
process will continue until it reaches a bottom. Then people will start to
regain jobs, earn money, start to buy, the economy will grow, and people may again return
to complaining about inflation.
Agree
Disagree
