Test Bank For Financial Markets and Institutions 12Th Edition by Madura Isbn 1337099740 9781337099745 Full Chapter PDF

Chapter 02: Determination of Interest Rates
Test Bank for Financial Markets and Institutions 12th Edition by

Madura ISBN 1337099740 9781337099745
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1. The level of installment debt as a percentage of disposable income is generally during recessionary periods.
a. higher
b. lower
c. zero
d. negative
ANSWER: b
DIFFICULTY: Easy
LEARNING OBJECTIVES: FMAI.MADU.15.02.01
NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS: Bloom's: Knowledge
2. At any given point in time, households would demand a quantity of loanable funds at rates of interest.
a. greater; higher
b. greater; lower
c. smaller; lower
d. none of the above
ANSWER: b
DIFFICULTY: Easy
3. Businesses demand loanable funds to

a. finance installment debt.
b. subsidize other companies.
c. invest in fixed and short-term assets.
ANSWER: c
DIFFICULTY: Easy
Copyright Cengage Learning. Powered by Cognero. Page 1

4. The required return to implement a given business project will be if interest rates are lower. This implies that
businesses will demand a quantity of loanable funds when interest rates are lower.
a. greater; lower
b. lower; greater
c. lower; lower
d. greater; greater
ANSWER: b
DIFFICULTY: Easy


KEYWORDS: Bloom's: Comprehension
5. If interest rates are , projects will have positive NPVs.

a. higher; more
b. lower; more
c. lower; no
ANSWER: b
6. The demand for funds resulting from business investment in short-term assets is related to the number of projects
implemented, and is therefore related to the interest rate.
a. inversely; positively
b. positively; inversely
c. inversely; inversely
d. positively; positively
ANSWER: b
DIFFICULTY: Easy
7. If economic conditions become less favorable, then:

a. expected cash flows on various projects will increase.
b. more proposed projects will have expected returns greater than the hurdle rate.
c. there would be additional acceptable business projects.
d. there would be a decreased demand by business for loanable funds.
ANSWER: d
DIFFICULTY: Easy
8. As a result of more favorable economic conditions, there is a(n) demand for loanable funds, causing an shift
in the demand curve.
a. decreased; inward
b. decreased; outward
c. increased; outward
d. increased; inward
ANSWER: c
DIFFICULTY: Easy
9. The federal government’s demand for loanable funds is . If the budget deficit is expected to increase, the federal
government’s demand for loanable funds would .
a. interest-elastic; decrease
b. interest-elastic; increase
c. interest-inelastic; increase
d. interest-inelastic; decrease
ANSWER: c
DIFFICULTY: Moderate
10. Other things being equal, foreign governments and corporations would demand U.S. funds if their local interest
rates were lower than U.S. rates. Therefore, for a given set of foreign interest rates, foreign demand for U.S. funds is
related to U.S. interest rates.
a. less; inversely
b. more; positively
c. less; positively
d. more; inversely
ANSWER: a
11. For a given set of foreign interest rates, the quantity of U.S. loanable funds demanded by foreign governments or firms
will be U.S. interest rates.
a. positively related to
b. inversely related to
c. unrelated to
ANSWER: b
DIFFICULTY: Easy

12. The quantity of loanable funds supplied is normally

a. highly interest-elastic.
b. more interest-elastic than the demand for loanable funds.
c. less interest-elastic than the demand for loanable funds.
d. equally as interest-elastic as the demand for loanable funds.
e. A and B
ANSWER: c
13. The sector is the largest supplier of loanable funds.

a. household
b. government
c. business
ANSWER: a
DIFFICULTY: Easy
14. If a strong economy allows for a large in households’ income, the supply curve will shift .
a. decrease; outward
b. increase; inward
c. increase; outward
ANSWER: c
15. The equilibrium interest rate

a. equates the aggregate demand for funds with the aggregate supply of loanable funds.
b. equates the elasticity of the aggregate demand and supply for loanable funds.

c. decreases as the aggregate supply of loanable funds decreases.

d. increases as the aggregate demand for loanable funds decreases.
ANSWER: a
DIFFICULTY: Easy
16. The equilibrium interest rate should

a. fall when the aggregate supply of funds exceeds the aggregate demand for funds.
b. rise when the aggregate supply of funds exceeds the aggregate demand for funds.
c. fall when the aggregate demand for funds exceeds the aggregate supply of funds.
d. rise when the aggregate demand for funds equals the aggregate supply of funds.
e. B and C
ANSWER: a
DIFFICULTY: Easy
17. Which of the following is likely to cause a decrease in the equilibrium U.S. interest rate, other things being equal?
a. a decrease in saving by foreign savers
b. an increase in inflation
c. pessimistic economic projections that cause businesses to reduce expansion plans
d. a decrease in saving by U.S. households
ANSWER: c
18. The Fisher effect states that the

a. nominal interest rate equals the expected inflation rate plus the real rate of interest.
b. nominal interest rate equals the real rate of interest minus the expected inflation rate.
c. real rate of interest equals the nominal interest rate plus the expected inflation rate.
d. expected inflation rate equals the nominal interest rate plus the real rate of interest.
ANSWER: a
DIFFICULTY: Easy
19. If the real interest rate was negative for a period of time, then
a. inflation is expected to exceed the nominal interest rate in the future.
b. inflation is expected to be less than the nominal interest rate in the future.
c. actual inflation was less than the nominal interest rate.
d. actual inflation was greater than the nominal interest rate.
ANSWER: d
DIFFICULTY: Easy
20. If inflation is expected to decrease, then

a. savers will provide less funds at the existing equilibrium interest rate.
b. the equilibrium interest rate will increase.
c. the equilibrium interest rate will decrease.
d. borrowers will demand more funds at the existing equilibrium interest rate.
ANSWER: c
DIFFICULTY: Easy
21. If inflation turns out to be lower than expected

a. savers benefit.
b. borrowers benefit while savers are not affected.
c. savers and borrowers are equally affected.
d. savers are adversely affected but borrowers benefit.
ANSWER: a
DIFFICULTY: Easy
22. If the economy weakens, there is pressure on interest rates. If the Federal Reserve increases the money supply
there is pressure on interest rates (assume that inflationary expectations are not affected).
a. upward; upward
b. upward; downward
c. downward; upward
d. downward; downward
ANSWER: d
23. What is the basis of the relationship between the Fisher effect and the loanable funds theory?
a. the saver's desire to maintain the existing real rate of interest
b. the borrower's desire to achieve a positive real rate of interest
c. the saver's desire to achieve a negative real rate of interest
d. B and C
ANSWER: a
24. Assume that foreign investors who have invested in U.S. securities decide to decrease their holdings of U.S. securities
and to instead increase their holdings of securities in their own countries. This should cause the supply of loanable funds
in the United States to and should place pressure on U.S. interest rates.
a. decrease; upward
b. decrease; downward
c. increase; downward
d. increase; upward
ANSWER: a
KEYWORDS: Bloom's: Application
25. Assume that foreign investors who have invested in U.S. securities decide to increase their holdings of U.S. securities.
This should cause the supply of loanable funds in the United States to and should place pressure on U.S.
interest rates.
a. decrease; upward
b. decrease; downward
c. increase; downward
d. increase; upward
ANSWER: c
26. If the federal government needs to borrow additional funds, this borrowing reflects a(n) in the supply of loanable
funds and a(n) in the demand for loanable funds.
a. increase; no change
b. decrease; no change
c. no change; increase
d. no change; decrease
ANSWER: c
27. If the federal government reduces its budget deficit, this causes a(n) in the supply of loanable funds and a(n)
in the demand for loanable funds.
a. increase; no change
b. decrease; no change
c. no change; increase
d. no change; decrease
ANSWER: d
28. When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds
to and the demand for loanable funds to .
a. increase; decrease
b. increase; increase
c. decrease; increase
d. decrease; decrease
ANSWER: c
DIFFICULTY: Easy
29. If the real interest rate is expected to become negative, then the purchasing power of savings would be , as the
inflation rate is expected to be the existing nominal interest rate.
a. decreasing; less than
b. decreasing; greater than
c. increasing; greater than

d. increasing; less than

ANSWER: b
30. If economic expansion is expected to decrease, the demand for loanable funds should and interest rates should
.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
ANSWER: c
31. The federal government’s spending policies are generally thought to be interest rates, but municipal
governments’ spending is somewhat interest rates.
a. independent of; sensitive to
b. sensitive to; independent of
c. inversely rated to; positively related to
d. positively related to; inversely related to
ANSWER: a
DIFFICULTY: Easy
32. The federal government’s determines the budget deficit and therefore determines the government’s
demand for loanable funds.
a. monetary policy
b. fiscal policy
c. congressional policy
d. economic policy
ANSWER: b
DIFFICULTY: Easy
33. Canada and the United States are major trading partners. If Canada experiences a major increase in economic growth,
that could place pressure on Canadian interest rates and pressure on U.S. interest rates.
a. upward; upward
b. upward; downward
c. downward; downward
d. downward; upward
ANSWER: a
34. If investors shift funds from stocks into bank deposits, this the supply of loanable funds and places pressure
on interest rates.
a. increases; upward
b. increases; downward
c. decreases; downward
d. decreases; upward
ANSWER: b
35. When Japanese interest rates rise, and if exchange rate expectations remain unchanged, the most likely effect is that
the supply of loanable funds provided by Japanese investors to the United States will , and U.S. interest rates will
.
a. increase; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase
ANSWER: d
36. Which of the following will probably not result in an increase in the business demand for loanable funds?
a. an increase in positive net present value (NPV) projects
b. a reduction in interest rates on business loans
c. a recession


ANSWER: c
DIFFICULTY: Easy
37. If the aggregate demand for loanable funds increases without a corresponding in aggregate supply, there will be
a of loanable funds.
a. increase; surplus
b. increase; shortage
c. decrease; surplus
d. decrease; shortage
ANSWER: b
DIFFICULTY: Easy
38. A federal government deficit increases the quantity of loanable funds demanded at any prevailing interest rate,
causing an shift in the demand schedule.
a. higher; inward
b. higher; outward
c. lower; outward
ANSWER: b
39. Which of the following is not true regarding foreign interest rates?
a. The large flow of funds between countries causes interest rates in any given country to becomemore
susceptible to interest rate movements in other countries.
b. The expectations of a strong dollar should cause a flow of funds to the United States.
c. An increase in a foreign country's interest rates will encourage investors in that country to invest their funds in
other countries.
d. All of the above are true regarding foreign interest rates.
ANSWER: c
DIFFICULTY: Easy


40. Which of the following is least likely to affect household demand for loanable funds?
a. a decrease in tax rates
b. an increase in interest rates
c. a reduction in positive net present value (NPV) projects available
d. All of the above are equally likely to affect household demand for loanable funds.
ANSWER: c
DIFFICULTY: Easy
41. Which of the following statements is incorrect?

a. The Fed's monetary policy is intended to influence U.S. economic conditions.
b. The Fed's monetary policy affects the supply of loanable funds, which affects interest rates.
c. By influencing interest rates, the Fed is able to influence the amount of money that corporations and
households are willing to borrow and spend.
d. All of the statements above are true.
ANSWER: d
42. The suggests that the market interest rate is determined by factors that control the supply of and demand for
loanable funds.
a. Fisher effect
b. loanable funds theory
c. real interest rate
ANSWER: b
DIFFICULTY: Easy
43. When forecasting future interest rates, if the net demand for funds (ND) is , there will be an adjustment
in interest rates.
a. negative; upward
b. negative; downward
c. positive; upward
d. positive; downward
ANSWER: c
DIFFICULTY: Easy
44. Other things being equal, a quantity of U.S. funds would be demanded by foreign governments and corporations
if their domestic interest rates were relative to U.S. rates.
a. smaller; high
b. larger; high
c. larger; low
ANSWER: b
DIFFICULTY: Easy
45. The federal government demand for funds is said to be interest-inelastic, or to interest rates.
a. sensitive
b. insensitive
c. relatively sensitive as compared to other sectors
ANSWER: b
DIFFICULTY: Easy
46. In computing the net present value of a proposed project, the required rate of return to implement the project willbe
if interest rates are .
a. lower; higher
b. lower; lower
c. higher; lower
d. higher; unchanged
ANSWER: b
DIFFICULTY: Easy

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until pardoned, failure to pay taxes.
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soldiers, seamen, and marines, Indians.
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Convicts.
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NEW HAMPSHIRE.
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NEW YORK.
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Under guardianship, persons non compos mentis, or convicted

of felony and treason, unless restored to civil rights.
OHIO.
Felony until pardoned, idiots, insane, United States

soldiers and sailors.
{677}
OREGON.
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has declared intention 1 year preceding election.
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and sailors, Chinese.
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Congressional Record, January 4-5, 1901,

pages 618-20, and 662-5.
The resolutions of Mr. Olmsted were not adopted. The

reapportionment was made on the basis of the totals of the
census returns, with no reckoning of any denials of the right
to vote. The following is the text of the Act, as passed and
approved January 16:
"Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled, That after
the third day of March, nineteen hundred and three, the House
of Representatives shall be composed of three hundred and
eighty-six members [the existing number being 357] to be
apportioned among the several States as follows:
Alabama, nine;
Arkansas, seven;
California, eight;
Colorado, three;
Connecticut, five;
Delaware, one;
Florida, three;
Georgia, eleven;
Idaho, one;
Illinois, twenty-five;
Indiana, thirteen;
Iowa, eleven;
Kansas, eight;
Kentucky, eleven;
Louisiana, seven;
Maine, four;
Maryland, six;
Massachusetts, fourteen;
Michigan, twelve;
Minnesota, nine;
Mississippi, eight;
Missouri, sixteen:
Montana, one;
Nebraska, six;
Nevada, one;
New Hampshire, two;
New Jersey, ten;
New York, thirty-seven;
North Carolina, ten;
North Dakota, two;
Ohio, twenty-one:
Oregon, two;
Pennsylvania, thirty-two;
Rhode Island, two;
South Carolina, seven;
South Dakota, two;
Tennessee, ten:
Texas, sixteen:
Utah, one;
Vermont, two;
Virginia, ten;
Washington, three;
West Virginia, five;
Wisconsin, eleven; and
Wyoming, one.
"SECTION 2.
That whenever a new State is admitted to the Union the
Representative or Representatives assigned to it shall be in
addition to the number three hundred and eighty-six.
"SECTION 3.
That in each State entitled under this apportionment, the
number to which such State may be entitled in the Fifty-eighth
and each subsequent Congress shall be elected by districts
composed of contiguous and compact territory and containing as
nearly as practicable an equal number of inhabitants. The said
districts shall be equal to the number of the Representatives
to which such State may be entitled in Congress, no one
district electing more than one Representative.
"SECTION 4.
That in case of an increase in the number of Representatives
which may be given to any State under this apportionment such
additional Representative or Representatives shall be elected
by the State at large, and the other Representatives by the
districts now prescribed by law until the legislature of such
State in the manner herein prescribed, shall redistrict such
State; and if there be no increase in the number of
Representatives from a State the Representatives thereof shall
be elected from the districts now prescribed by law until such
State be redistricted as herein prescribed by the legislature
of said State; and if the number hereby provided for shall in
any State be less than it was before the change hereby made,
then the whole number to such State hereby provided for shall
be elected at large, unless the legislatures of said States
have provided or shall otherwise provide before the time fixed
by law for the next election of Representatives therein.
"SECTION 5.
That all Acts and parts of Acts inconsistent with this Act are
hereby repealed."
No existing State quota was reduced by the new apportionment,

and the gains were as follows:
Illinois, New York and Texas, 3;
Minnesota, New Jersey and Pennsylvania, 2;
Arkansas, California, Colorado, Connecticut, Florida,
Louisiana, Massachusetts, Mississippi, Missouri, North
Carolina, North Dakota, Washington, West Virginia and
Wisconsin, 1.
{678}
That clause of the third section which requires districts to

be "composed of contiguous and compact territory" is intended
to be a bar to the partisan trick called "gerrymandering." The
vote on the bill in the House (165 against 102) was singularly
non-partisan. The minority was said to be composed of exactly
the same number of Republicans and Democrats, 51 of each, and
in the majority vote there were included 84 Republicans and 81
Democrats. The vote was also non-sectional, except that New
England voted almost solidly for the measure. East, South and
West the State delegations were almost equally divided.
UNITED STATES OF AMERICA: A. D. 1901 (February).

Act to increase the standing army of the nation to 100,000 men.
In his annual Message to Congress, December 3, 1900, the

President set forth the military needs of the country, created
by its new policy of imperial expansion, and recommended that
the permanent army be raised to 100,000 in number, from 45,000
to 60,000 of which would be required in the Philippine Islands
until their people were made submissive to the authority of
the United States. In accord with the executive
recommendation, Congress passed "an Act to increase the
efficiency of the permanent military establishment of the
United States," which became law by the President's signature
on the 2d of February, 1901. Its first section provides that
"from and after the approval of this Act the Army of the
United States, including the existing organizations, shall
consist of fifteen regiments of cavalry, a corps of artillery,
thirty regiments of infantry, one Lieutenant-General, six
major-generals, fifteen brigadier-generals, an
Adjutant-General's Department, an Inspector-General's
Department, a Judge-Advocate-General's Department, a
Quartermaster's Department, a Subsistence Department, a
Medical Department, a Pay Department, a Corps of Engineers, an
Ordnance Department, a Signal Corps, the officers of the
Record and Pension Office, the chaplains, the officers and
enlisted men of the Army on the retired list, the professors,
corps of cadets, the army detachments and band at the United
States Military Academy, Indian scouts as now authorized by
law, and such other officers and enlisted men as may
hereinafter be provided for." A subsequent section enacts that
the total enlisted force of the line of the army shall not exceed
at any one time 100,000.
Section 2 provides that "each regiment of cavalry shall

consist of one colonel, one lieutenant-colonel, three majors,
fifteen captains, fifteen first lieutenants, and fifteen
second lieutenants; two veterinarians, one sergeant-major, one
quartermaster-sergeant, one commissary-sergeant, three
squadron sergeants-major, two color-sergeants with rank, pay,
and allowances of squadron sergeant-major, one band, and
twelve troops organized into three squadrons of four troops
each. … Each troop of cavalry shall consist of one captain,
one first lieutenant, one second lieutenant, one first
sergeant, one quartermaster-sergeant, six sergeants, six
corporals, two cooks, two farriers and blacksmiths, one
saddler, one wagoner, two trumpeters, and forty-three
privates; the commissioned officers to be assigned from among
those hereinbefore authorized."
Sections 3-9, relating to the Artillery, are, in part, as

follows:
"That the regimental organization of the artillery arm of the

United States Army is hereby discontinued, and that arm is
constituted and designated as the Artillery Corps. It shall be
organized as hereinafter specified and shall belong to the
line of the Army. That the Artillery Corps shall comprise two
branches—the coast artillery and the field artillery. The
coast artillery is defined as that portion charged with the
care and use of the fixed and movable elements of land and
coast fortifications, including the submarine mine and torpedo
defenses; and the field artillery as that portion accompanying
an army in the field, and including field and light artillery
proper, horse artillery, siege artillery, mountain artillery,
and also machine-gun batteries: Provided, That this shall not
be construed to limit the authority of the Secretary of War to
order coast artillery to any duty which the public service
demands or to prevent the use of machine or other field guns
by any other arm of the service under the direction of the
Secretary of War. … That the Artillery Corps shall consist of
a Chief of Artillery, who shall be selected and detailed by
the President from the colonels of artillery, to serve on the
staff of the general officer commanding the Army, and whose
duties shall be prescribed by the Secretary of War: fourteen
colonels, one of whom shall be the Chief of Artillery;
thirteen lieutenant-colonels, thirty-nine majors, one hundred
and ninety-five captains, one hundred and ninety-five first
lieutenants, one hundred and ninety-five second lieutenants;
and the captains and lieutenants provided for in this section
not required for duty with batteries or companies shall be
available for duty as staff officers of the various artillery
garrisons and such other details as may be authorized by law
and regulations; twenty-one sergeants-major, with the rank,
pay, and allowances of regimental sergeants-major of infantry;
twenty-seven sergeants-major, with the rank, pay, and
allowances of battalion sergeants-major of infantry; one
electrician sergeant to each coast artillery post having
electrical appliances; thirty batteries of field artillery,
one hundred and twenty-six batteries of coast artillery, and
ten bands organized as now authorized by law for artillery
regiments: Provided, That the aggregate number of enlisted men
for the artillery, as provided under this Act, shall not
exceed eighteen thousand nine hundred and twenty, exclusive of
electrician sergeants." Concerning the Infantry it is
provided, in Section 10, that "each regiment of infantry shall
consist of one colonel, one lieutenant colonel, three majors,
fifteen captains, fifteen first lieutenants, and fifteen
second lieutenants; one sergeant-major, one
quartermaster-sergeant, one commissary-sergeant, three
battalion sergeants-major, two color sergeants, with rank,
pay, and allowances of battalion sergeants-major, one band,
and twelve companies, organized into three battalions of four
companies each. Of the officers herein provided, the captains
and lieutenants not required for duty with the companies shall
be available for detail as regimental and battalion staff
officers and such other details as may be authorized by law or
regulations. … Each infantry company shall consist of one
captain, one first lieutenant, one second lieutenant, one
first sergeant, one quartermaster-sergeant, four sergeants,
six corporals, two cooks, two musicians, one artificer, and
forty-eight privates, the commissioned officers to be assigned
from those hereinbefore authorized."
{679}
Section 11 provides that "the enlisted force of the Corps of
Engineers shall consist of one band and three battalions of
engineers. … Each battalion of engineers shall consist of one
sergeant-major, one quartermaster-sergeant, and four
companies. Each company of engineers shall consist of one
first sergeant, one quartermaster-sergeant, with the rank,
pay, and allowances of sergeant, eight sergeants, ten
corporals, two musicians, two cooks, thirty-eight first-class
and thirty-eight second-class privates."
Section 12 relates to the appointment of army chaplains—one

for each regiment of cavalry and infantry, and twelve for the
corps of artillery—no person to be appointed who has passed
the age of forty years. The office of post chaplain is
abolished. Sections 13 to 27 relate mainly to the organization
of the several Departments, of the Adjutant-General,
Inspector-General, Judge-Advocate-General,
Quartermaster-General, Commissary-General, Surgeon-General,
Paymaster-General, Chief of Engineers, Chief of Ordnance, etc.
Section 28, prescribing the rules of promotion and

appointment, is as follows: "That vacancies in the grade of
field officers and captain, created by this Act, in the
cavalry, artillery, and infantry shall be filled by promotion
according to seniority in each branch, respectively. Vacancies
existing after the promotions have been made shall be provided
for as follows: A sufficient number shall be reserved in the
grade of second lieutenant for the next graduating class at
the United States Military Academy. Persons not over forty
years of age who shall have at any time served as volunteers
subsequent to April twenty-first, eighteen hundred and
ninety-eight, may be ordered before boards of officers for
such examination as may be prescribed by the Secretary of War,
and those who establish their fitness before these examining
boards may be appointed to the grades of first or second
lieutenant in the Regular Army, taking rank in the respective
grades according to seniority as determined by length of prior
commissioned service; but no person appointed under the
provisions of this section shall be placed above another in
the same grade with longer commissioned service, and nothing
herein contained shall change the relative rank of officers
heretofore commissioned in the Regular Army. Enlisted men of
the Regular Army or volunteers may be appointed second
lieutenants in the Regular Army to vacancies created by this
Act, provided that they shall have served one year, under the
same conditions now authorized by law for enlisted men of the
Regular Army."
Important provisions are embodied in Sections 35 and 36, as

follows:
"SECTION 35. That the Secretary of War be, and he is hereby,

authorized and directed to cause preliminary examinations and
surveys to be made for the purpose of selecting four sites
with a view to the establishment of permanent camp grounds for
instruction of troops of the Regular Army and National Guard,
with estimates of the cost of the sites and their equipment
with all modern appliances, and for this purpose is authorized
to detail such officers of the Army as may be necessary to
carry on the preliminary work; and the sum of ten thousand
dollars is hereby appropriated for the necessary expense of
such work, to be disbursed under the direction of the
Secretary of War: Provided, That the Secretary of War shall
report to Congress the result of such examination and surveys,
and no contract for said sites shall be made nor any
obligation incurred until Congress shall approve such
selections and appropriate the money therefor.
"SECTION 36. That when in his opinion the conditions in the

Philippine Islands justify such action the President is
authorized to enlist natives of those islands for service in
the Army, to be organized as scouts, with such officers as he
shall deem necessary for their proper control, or as troops or
companies, as authorized by this Act, for the Regular Army.
The President is further authorized, in his discretion, to
form companies, organized as are companies of the Regular
Army, in squadron's or battalions, with officers and
non-commissioned officers corresponding to similar
organizations in the cavalry and infantry arms. The total
number of enlisted men in said native organizations shall not
exceed twelve thousand, and the total enlisted force of the
line of the Army, together with such native force, shall not
exceed at any one time one hundred thousand. … When, in the
opinion of the President, natives of the Philippine Islands
shall, by their services and character, show fitness for
command, the President is authorized to make provisional
appointments to the grades of second and first lieutenants
from such natives, who, when so appointed, shall have the pay
and allowances to be fixed by the Secretary of War, not
exceeding those of corresponding grades of the Regular Army."
Section 38 abolishes the so-called "Army Canteen," in

compliance with strenuous demands from temperance
organizations in the country, notwithstanding much testimony
favorable to the canteen system from well-informed and
conscientious witnesses. The language of the section is as
follows: "The sale of or dealing in beer, wine, or any
intoxicating liquors, by any person in any post exchange or
canteen or army transport, or upon any premises used for
military purposes by the United States, is hereby prohibited.
The Secretary of War is hereby directed to carry the
provisions of this section into full force and effect." Prompt
obedience to this command of law was given by the War
Department, which issued the required general order February
4th.
The following amendment, proposed by Senator Hoar for addition

to the Act, was voted down: "Provided, That no further
military force shall be used in the Philippine Islands, except
such as may be necessary to keep order in places there now
actually under the peaceable control of the United States and
to protect persons or property to whom, in the judgment of the
President, protection may be due from the United States, until
the President shall have first proclaimed an amnesty for all
political offenses committed against the United States in the
Philippine Islands, and shall have, if in his power, agreed
upon an armistice with persons now in hostility to the United
States, and shall have invited such number, not less than 10,
as he shall think desirable of the leaders or representatives
of the persons now hostile to the United States there to come
to the United States and state their wishes and the condition,
character, and wishes of the people of the Philippine Islands
to the Executive and Congress, and shall have offered to
secure to them safe conduct to come, abide, and return, and
shall have provided at the public charge for the expenses of
their transportation both ways and their stay in this country
for a reasonable and sufficient time for such purpose."
{680}
UNITED STATES OF AMERICA: A. D. 1910 (February).

The Russian sugar question.
United States countervailing duty and Russian retaliation.
See (in this volume)

SUGAR BOUNTIES.
UNITED STATES OF AMERICA: A. D. 1901 (February-March).

Adoption of the so-called "Spooner Amendment" to
the Army Appropriation Bill empowering the President to
establish a civil government in the Philippines.

PHILIPPINE ISLANDS: A. D. 1901 (FEBRUARY-MARCH).
UNITED STATES OF AMERICA: A. D. 1901 (February-March).

Adoption of the "Platt Amendment," prescribing conditions on
which the President is authorized to "leave the government and
control of the island of Cuba to its people."

CUBA: A. D. 1901 (FEBRUARY-MARCH).
UNITED STATES OF AMERICA: A. D. 1901 (March).

Reinauguration of President McKinley for a second term in the
executive office. His inaugural address.
The reinauguration of President McKinley, for the second term

of office to which he had been elected, was performed with the
customary ceremonies, at the capitol, in Washington, on the
4th of March, 1001. His inaugural address upon the occasion is
especially interesting, for the reason that it indicates the
understanding with which the President received his
re-election, and the interpretation which he has put upon it
as an expression of the national will on questions of
extraordinary moment. He spoke as follows:
"My Fellow Citizens: When we assembled here on March 4, 1897,

there was great anxiety with regard to our currency and
credit. None exists now. Then our treasury receipts were
inadequate to meet the current obligations of the government.
Now they are sufficient for all public needs, and we have a
surplus instead of a deficit. Then I felt constrained to
convene the Congress in extraordinary session to devise
revenues to pay the ordinary expenses of the government. Now I
have the satisfaction to announce that the Congress just
closed has reduced taxation in the sum of $41,000,000. Then
there was deep solicitude because of the long depression in
our manufacturing, mining, agricultural and mercantile
industries, and the consequent distress of our laboring
population. Now every avenue of production is crowded with
activity, labor is well employed and American products find
good markets at home and abroad. Our diversified productions,
however, are increasing in such unprecedented volume as to
admonish us of the necessity of still further enlarging our
foreign markets by broader commercial relations. For this
purpose reciprocal trade arrangements with other nations
should in liberal spirit be carefully cultivated and promoted.
"The national verdict of 1896 has for the most part been
executed. Whatever remains unfulfilled is a continuing
obligation resting with undiminished force upon the Executive
and the Congress. But fortunate as our condition is, its
permanence can only be assured by sound business methods and
strict economy in national administration and legislation. We
should not permit our great prosperity to lead us to reckless
ventures in business or profligacy in public expenditures.
While the Congress determines the objects and the sum of
appropriations, the officials of the executive departments are
responsible for honest and faithful disbursement, and it
should be their constant care to avoid waste and extravagance.
Honesty, capacity and industry are nowhere more indispensable
than in public employment. These should be fundamental
requisites to original appointment and the surest guarantees
against removal.
"Four years ago we stood on the brink of war without the

people knowing it and without any preparation or effort at
preparation for the impending peril. I did all that in honor
could be done to avert the war, but without avail. It became
inevitable, and the Congress at its first regular session,
without party division, provided money in anticipation of the
crisis and in preparation to meet it. It came. The result was
signally favorable to American arms and in the highest degree
honorable to the government. It imposed upon us obligations
from which we cannot escape, and from which it would be
dishonorable to seek to escape. We are now at peace with the
world, and it is my fervent prayer that if differences arise
between us and other powers they may be settled by peaceful
arbitration, and that hereafter we may be spared the horrors
of war.

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Chapter 02: Determination of Interest Rates

Test Bank for Financial Markets and Institutions 12th Edition by

3. Businesses demand loanable funds to

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LEARNING OBJECTIVES: FMAI.MADU.15.02.01

5. If interest rates are , projects will have positive NPVs.

7. If economic conditions become less favorable, then:

NATIONAL STANDARDS: United States - BUSPROG.FMAI.MADU.15.03

12. The quantity of loanable funds supplied is normally

13. The sector is the largest supplier of loanable funds.

15. The equilibrium interest rate

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c. decreases as the aggregate supply of loanable funds decreases.

16. The equilibrium interest rate should

18. The Fisher effect states that the

KEYWORDS: Bloom's: Knowledge

20. If inflation is expected to decrease, then

21. If inflation turns out to be lower than expected

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d. increasing; less than

KEYWORDS: Bloom's: Knowledge

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d. none of the above

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STATE STANDARDS: United States - OH - DISC.FMAI.MADU.15.02

41. Which of the following statements is incorrect?

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Under guardianship, insane, idiots, or imprisoned.

Convicted of felony or theft, unless pardoned.

Idiots, insane, paupers, felons. Person who can not

Insane, under guardianship, convicted of felony or any

Idiots, insane, convicted of crime punishable by imprisonment

Convicted of crime and disfranchised by judgment of the court,

Idiots, insane, convicted of infamous crime.

Felons, insane, duelists, rebels, not restored to

Treason, felony, bribery at election.

Paupers, persons under guardianship, Indians not taxed, and in

Convicted of larceny or other infamous crime, unless pardoned,

Paupers and persons under guardianship, person who can not

Indians, duelists, and accessories.

Insane, idiots, Indians not taxed, felons, persons who have

United States soldiers and marines, paupers, criminals

Felons, unless pardoned, idiots, insane, United States

Idiots, insane, unpardoned convicts, Indians, Chinese.

Idiots, insane paupers, persons convicted of crimes (unless

Convicted of bribery or any infamous crime, Indians under

Convicted of felony or other infamous crime, idiots,

Under guardianship, persons non compos mentis, or convicted

Felony until pardoned, idiots, insane, United States

Idiots, insane, convicted of felony, United States soldiers

Convicted of some offense whereby right of suffrage is

Paupers, lunatics, persons non compos mentis, convicted

Convicted of treason, murder, or other infamous crime,

Convicted of bribery or other infamous offense.

Idiots, lunatics, paupers, convicted of felony, United

Idiots, insane, convicted of treason or violation of

Those who have not obtained the approbation of the board of

Idiots, lunatics, convicted of bribery at election,

Paupers, idiots, lunatics, convicted of treason, felony, or

Insane, under guardianship, convicted of treason or felony,

Idiots, insane, persons convicted of infamous crimes unless

Congressional Record, January 4-5, 1901,