Answered: If people are willing to save more…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter27: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 1CQ

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Question

Draw the loanable funds market for 30-year fixed rate mortgages with the equilibrium rate at 5.13% and the equilibrium total amount of mortgages at $12.0 trillion.

a> For the sake of simplicity, assume that mortgages are issued and financed through “banks” (I know some of you work in the mortgage, real estate, or finance industry and know the minute details of the mortgage market, but let’s just keep it simple). If people are willing to save more money in “banks,” how will this market be affected? (i.e., which curve(s) will shift, and in which direction?)

b> What will happen to the equilibrium quantity of loans after the event in part a? What will happen to the equilibrium interest rate for 30-year fixed rate mortgages after the event in part a?

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