Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Chapter 21, Problem 5P
To determine
To explain:
The effect on loanable funds supply curve if current disposable income increases and new technologies decrease.
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Using the loanable funds theory, illustrate the effect of the following on the level of interest rates.A. An increase in expected future income. B. An increase in income levels which would result in an increase in the level of savings.
Show graphically and explain how an increase in household confidence about future income affects the loanable funds market
list the factors that affect the demand side of the loanable funds market. which factors shift the curve?
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- ] In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change?arrow_forwardGraphically Show each scenario of the market for loanable funds and graph the supply and demand for each of the 4 scenarios. Draw the shift occurring (Supply or Demand) and explain what happens to the equilibrium interest rate in for each of the 4 scenarios 1. A breakthrough in medical technology results in many hospitals wanting to buy new equipment. 2. The government budget deficit is reduced by 50%. 3. Foreign investors buy residential property in the United States. 4. People around the world are worried about financial stability in their countries and choose to move their wealth to U.S. financial markets.arrow_forwardHow do the sophisticated financial systems of modern economies affect the relationship between saving and investment?arrow_forward
- Imagine a scenario in which there is a decreased consumer confidence in domestic financial systems. As a result, consumers have increased their savings in foreign financial institutions. What is the likely result of the supply loanable funds market? A)The supply of loanable funds will increase B)The supply of loanable funds will decrease C) Demand for loanable funds will decreasearrow_forwardHow does an increase in government borrowing affect the equilibrium interest rate in the market for loanable funds?arrow_forwardTextbook: Macroeconomics by P. Krugman & R. Wells (5th Edition) Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of percentage points in the expected future inflation rate. How will the change in the expected future inflation rate affect the equilibrium quantity of loanable funds?arrow_forward
- The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. NOTE: the first dropdown question options are (fall or rise), the seconds are (decrease or increase), the thirds are (fall or rise), the fourths are (fall or rise), the fifths are (deficit or surplus), the sixths are (decreases or increases), the sevenths are (fall or rise), and the last ones is (crowding out ot increasing)arrow_forwardUsing the framework of the supply and demand of loanable funds, analyze the possible effect on the equilibrium interest rate in the U.S. in each of the following independent, hypothetical scenarios. a. The economy heats up, leading to higher wages and decreased unemployment. b. Concerned that the credit rating of US Treasury securities will be downgraded, international investors move some money out of the US. c. Congress approves a budget that decreases spending and increases tax rates, thereby driving the deficit downarrow_forwardWhich factor brings the supply and demand of loanable funds into balance? net capital outflows the real interest rate the futures market for commodities collective bargaining domestic investmentarrow_forward
- Draw the graph of the effect on the equilibrium in the loanable funds market when corporate taxes increase. Does the demand for loanable funds increase or decrease? Does the interest rate increase of decrease?arrow_forwardSuppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) Is this statement true, false or uncertain? Please provide your explaination.arrow_forwardAccording to Loanable Funds Theory, if interest rates decrease, which of the following can be expected? T-bills have yeld that is ____ than the rate on other money market securities. This difference even larger when the economy is ____ As expected inflation increasesarrow_forward
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