Economics, Student Value Edition (6th Edition)
6th Edition
ISBN: 9780134123851
Author: Hubbard, R. Glenn; O'Brien, Anthony Patrick
Publisher: PEARSON
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Question
Chapter 23, Problem 23.2.8PA
To determine
The interest effect on the investment.
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Briefly explain how an increase in interest rates affects consumer spending. investment spending, and government spending.
The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds.
(Graph in image)
(a. Saving, b. Investment) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied (a. increases, b. decreases).
Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (a. greater, b. less) than the quantity of loans demanded, resulting in a (a. surplus, b. shortage) of loanable funds. This would encourage lenders to (a. raise, b. lower) the interest rates they charge, thereby (a. increasing, b. decreasing) the quantity of loanable funds supplied and (a. increasing, b. decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ____ %.
Briefly explain the role played by banks between savers and borrowers and how the economy benefits (or not) from their taking on this role.
Chapter 23 Solutions
Economics, Student Value Edition (6th Edition)
Ch. 23.A - Prob. 1RQCh. 23.A - Prob. 2RQCh. 23.A - Prob. 3RQCh. 23.A - Prob. 4RQCh. 23 - Prob. 23.1.1RQCh. 23 - Prob. 23.1.2RQCh. 23 - Prob. 23.1.3RQCh. 23 - Prob. 23.1.4PACh. 23 - Prob. 23.1.5PACh. 23 - Prob. 23.1.6PA
Ch. 23 - Prob. 23.1.7PACh. 23 - Prob. 23.1.8PACh. 23 - Prob. 23.1.9PACh. 23 - Prob. 23.2.1RQCh. 23 - Prob. 23.2.2RQCh. 23 - Prob. 23.2.3RQCh. 23 - Prob. 23.2.4RQCh. 23 - Prob. 23.2.5RQCh. 23 - Prob. 23.2.6PACh. 23 - Prob. 23.2.7PACh. 23 - Prob. 23.2.8PACh. 23 - Prob. 23.2.9PACh. 23 - Prob. 23.2.10PACh. 23 - Prob. 23.2.11PACh. 23 - Prob. 23.2.12PACh. 23 - Prob. 23.2.13PACh. 23 - Prob. 23.2.14PACh. 23 - Prob. 23.3.1RQCh. 23 - Prob. 23.3.2RQCh. 23 - Prob. 23.3.3RQCh. 23 - Prob. 23.3.4RQCh. 23 - Prob. 23.3.5RQCh. 23 - Prob. 23.3.6PACh. 23 - Prob. 23.3.7PACh. 23 - Prob. 23.3.8PACh. 23 - Prob. 23.3.9PACh. 23 - Prob. 23.3.10PACh. 23 - Prob. 23.3.11PACh. 23 - Prob. 23.3.12PACh. 23 - Prob. 23.4.1RQCh. 23 - Prob. 23.4.2RQCh. 23 - Prob. 23.4.3RQCh. 23 - Prob. 23.4.4PACh. 23 - Prob. 23.4.5PACh. 23 - Prob. 23.4.6PACh. 23 - Prob. 23.4.7PACh. 23 - Prob. 23.4.8PACh. 23 - Prob. 23.4.9PACh. 23 - Prob. 23.4.10PACh. 23 - Prob. 23.4.11PACh. 23 - Prob. 23.4.12PACh. 23 - Prob. 23.4.13PACh. 23 - Prob. 23.5.1RQCh. 23 - Prob. 23.5.2RQCh. 23 - Prob. 23.5.3RQCh. 23 - Prob. 23.5.4PACh. 23 - Prob. 23.5.5PACh. 23 - Prob. 23.5.6PACh. 23 - Prob. 23.1RDE
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- Briefly discuss THREE economic policies that encourages household savings.arrow_forwardIf the GDP increases what is expected to happen. to the interest rate? Please answer uniquely in 500 words.arrow_forwardEconomists in Funlandia, which has a closed economy, have collected the following information about the economy for a particular year: YY = = 10,00010,000 CC = = 6,0006,000 TT = = 1,5001,500 GG = = 1,7001,700 The economists also estimate that the investment function is: II = = 3,300−100r3,300−100r where rr is the country’s real interest rate, expressed as a percentage. Complete the following table by calculating private saving, public saving, national saving, investment, and the equilibrium real interest rate. Component Amount Private Saving Public Saving National Saving Investment Equilibrium Real Interest Ratearrow_forward
- Classify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Neha borrows money to build a new lab for her engineering firm. Teresa purchases stock in Pherk, a pharmaceutical company. Sam purchases a new condominium in San Francisco. Lorenzo purchases a certificate of deposit at his bank.arrow_forwardEconomists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is: I = 3,300 – 100 r, Where r is the country’s real interest rate, expressed as a percentage. Calculate private saving, public saving, national saving, investment, and the equilibrium real interest rate.arrow_forwardExplain the effect of a sustained increase in savings on the growth of output in detail please. Also provide a simple graph to illustrate thisarrow_forward
- Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10,000 C = 6,000 T = 1,500 G = 1,700 The economists also estimate that the investment function is: I = 3,300 – 100 r, where r is the country’s real interest rate, expressed as a percentage. Calculate private saving?arrow_forwardThe graph characterizes a market for loanable funds. Shift the appropriate curves to indicate what will happen to the market if the government grants a new corporate tax credit for business investment. (Look at image) After this change, the real interest rate decreases and the quantity of loanable funds increases. the real interest rate decreases and the quantity of loanable funds decreases. the real interest rate increases and the quantity of loanable funds decreases. the real interest rate increases and the quantity of loanable funds increases.arrow_forwardClassify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Crystal borrows money to build a new lab for her engineering firm. Hilary purchases stock in Pherk, a pharmaceutical company. Edison takes out a mortgage for a new home in Detroit. Brian purchases a corporate bond issued by a car company.arrow_forward
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