1. Assume a pandemic hits a nation hard. As a result, firms are less confident about the economy. The most likely result would be a. a higher demand for loanable funds. b. a higher supply of loanable funds. c. an increase in equilibrium interest rates. d. a lower demand for loanable funds. e. higher productivity of capital.

1. Assume a pandemic hits a nation hard. As a result, firms are less confident about the economy. The most likely result would be a. a higher demand for loanable funds. b. a higher supply of loanable funds. c. an increase in equilibrium interest rates. d. a lower demand for loanable funds. e. higher productivity of capital.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 9P

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1. If the following policies were implemented, how would it affect the market for loanable funds, interest rates, investment and economic growth. Explain by using diagrams.a) A change in tax code that might increase private saving. b) Increase in government spending and also budget deficits.
In 1981, many interest rates in the United States were 15%, but the inflation rate was 10%. In 2015, many interest rates were less than 1%, and the inflation rate was 2%. a. What were the real interest rates in 1981 and 2015? b. all else equal, how does the drop in interest rates between 1981 and 2015 affect the quantity of loanable funds supplied? Question 2. Recently, the economies of China and India have begun to grow very rapidly. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. a. When foreign savings enter the U.s. loanable funds market, which curve is affected—supply or demand? How is this curve affected? b. How would you graph the U.s. loanable funds market both before and after the increase in foreign savings? c. How does the change in foreign savings affect both investment and future output in the United states? Question 3. Bond A pays Rs. 80,000 in 20…
Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S. a. fell. The increased saving would increase the quantity of loanable funds demanded.b. fell. The increased saving would increase the quantity of loanable funds supplied.c. rose. The increased saving would increase the quantity of loanable funds demanded.d. rose. The increased saving would increase the quantity of loanable funds supplied.
In 1981, many interest rates in the United States were 15%, but the inflation rate was 10%. In 2015, many interest rates were less than 1%, and the inflation rate was 2%. a. What were the real interest rates in 1981 and 2015? b. all else equal, how does the drop in interest rates between 1981 and 2015 affect the quantity of loanable funds supplied?
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Draw a graph of the supply and demand of loanable funds. Then, show how the interest rate will be affected when the following scenarios occur: a. The government implements a program that reduces investment tax credits. b. The government budget deficit is reduced by 30%. (Hint: Does the government still need to borrow?) c. More foreigners are saving their money in U.S. banks.
If and when the demand of loanable funds shifts to the left: Group of answer choices 1. This is good news for people who rely on the interest earnings from their savings but bad news for people who have outstanding home loans. 2. This is bad news for people who rely on the interest earnings from their savings but good news for people who have outstanding home loans. 3. This is good news both for people who rely on the interest earnings from their savings as well as those who have outstanding home loans. 4. This is bad news both for people who rely on the interest earnings from their savings as well as those who have outstanding home loans.
Consider the following policy scenarios and for each scenario diagrammatize and fully explain using analysis for the market for loanable funds how the following government policies affect the economy’s saving and investment. (a) Scenario Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. (b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs).
5. In the loanable funds model, the country’s stock of “investment” comes from: Production firms renting equipment High real interest rates Rental firms purchasing new capital to rent out to production firms Foreign firms
Interest Rate Quantity Demanded Quantity Supplied 12 100 520 10 200 480 8 300 440 6 400 400 4 500 360 2 600 320 The schedule shows various interest rates, the associated quantity demanded of loanable funds, and the quantity supplied of loanable funds in billions of dollars at those interest rates. What is the equilibrium interest rate? Group of answer choices 4 percent 6 percent 8 percent 10 percent
a high interest rate can also indicate that something positive is happening in the economy. Describe how positive factors can lead to an increased in the demand for loanable funds and then an increase in the interest rate.
Need help with economics question Using a supply and demand diagram, explain the following scenario impacts the market for loanable funds. Show your work, and be specific about what happens to the equilibrium. (d) People’s values change, and they start to save more of their income.