Classify each of the following in terms of their effect on interest rates (increase or decrease):I. Covenants on borrowing become more restrictive.II. The Federal Reserve increases the money supply.III. Total household wealth increases.Multiple ChoiceI increases; Il increases; I increasesI increases; Il decreases; Ill decreasesI decreases; Il increases; Il increasesI decreases; Il decreases; III decreasesうううう9

If Covenants on borrowing become more restrictive – The demand for the borrowing will reduce. This…

Answered: Classify each of the following in terms…

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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Consider the following figure which shows the loanable funds market (where SLF is the supply of loanable funds and DLF is the demand for loanable funds). If the real interest rate is 9 per cent, then a. there is a surplus in the loanable funds market b. there is a shortage in the loanable funds market. c. the demand for loanable funds curve will shift rightward. d. there will be a leftward shift in the demand for loanable funds curve.
Suppose the government borrows $20 million more next year than this year. Answer questions d and ea. Draw and fully label a diagram to illustrate the market for loanable fund to analyzethis policy.b. Does the rate of interest rise or fall? c. What happens to investment? To private savings? To public savings? To nationalsavings? d. How does the elasticity of the supply of loanable funds affect the size of thesechanges? e. How does the elasticity of the demand of loanable funds affect the size of thesechanges?
Chairman Latrobe, the Supreme Leader of Rolling Rock decided to increase the personal tax rate to fund the defense force. 8) How may this affect the loanable funds market? Explain by describing the change in the demand for, or the supply of, loanable funds. 9) Because of the change decreed by President Thug and your answer to question 8, what is likely to happen to the interest rate and the quantity of funds in the loanable funds market? 10) How will each of these Rolling Rockers feel about President Thug’s decision? (A) Investor Confidence (B) The President of Rolling Rock National Bank
Suppose the government borrows $20 million more next year than this year. How does the elasticity of the supply of loanable funds affect the size of these changes? How does the elasticity of the demand of loanable funds affect the size of these changes?
Manipulate the graph to show what will happen to supply and demand in the market for loanable funds when the government budget deficit increases, changing the equilibrium quantity of loanable funds by 3 percentage points. Ceteris paribus, what is the new interest rate? interest rate: 6 Ceteris paribus, private investment would decrease. not change. increase. % Interest rate (%) 10 9 8 7 6 4 3 2 1 0 0 Supply 6 Demand 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Quantity of loanable funds (% of GDP)
Show how an increase in the supply of loanable funds and a decrease in the demand for loanable funds can lower the real interest rate and leave the Real interest rate (percent per year) 12- equilibrium quantity of loanable funds unchanged. 10- Draw a demand for loanable funds curve. Label it DLF,. Draw a supply of loanable funds curve. Label it SLF,. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. 8- 6- Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF,. Draw a curve that shows an increase in the supply of loanable funds. Draw it in such a way that the equilibrium quantity of loanable funds does not change. Label it SLF,. 4- 2- Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2. 0- Loanable funds (trillions of 2007 dollars) >>> Draw only the objects specified in the question.
Analyze the impacts of the economy entering a time of expansion (i.e. "good times") on the market for loanble funds. (Assume that expectations about the future don't change.) Because of the expansion, equilibrium interest rates will and the equilibrium quantity of loanable funds will O decrease ; rise, fall, or not change (ambiguous effect) O increase ; decrease O increase ; rise, fall, or not change (ambiguous effect) rise, fall, or not change (ambiguous effect) ; increase O rise, fall, or not change (ambiguous effect) ; decrease
use the analysis for the market of loanble funds to illustrate and explain how the following government policy affect the economy's savings and investment. Policy 1: Suppose the government changes its tax code allowing individuals to reduce their taxable income if they save money in registered retirement savings plan. a. State and explain which loanable funds curve would this policy affect? b. What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.
1. Suppose the government borrows $20 million more next year than this year. a. How does the elasticity of the supply of loanable funds affect the size of thesechanges? b. How does the elasticity of the demand of loanable funds affect the size of thesechanges?
Show the effect on the real interest rate and equilibrium quantity of loanable funds of a decrease in the demand for loanable funds and a smaller decrease in the supply of loanable funds. Draw a demand for loanable funds curve. Label it DLF0. Draw a supply of loanable funds curve. Label it SLF0. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF1. Draw a curve that shows a smaller decrease in the supply of loanable funds. Label it SLF1. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
The table below shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. InterestRate QuantitySupplied QuantityDemanded5% 98 2216% 129 1917% 160 1608% 178 1429% 196 12410% 214 106 What is the equilibrium interest rate and quantity of loaned funds? r = % Q = Suppose there is a decrease in demand of money, what will happen to interest rates and quantity? Increase in Interest Rates, Increase in Quantity?Increase in Interest Rates, Decrease in Quantity?Decrease in Interest Rates, Increase in Quantity?Decrease in Interest Rates, Decrease in Quantity?
What is the effect of a fall in the real interest rate on the demand for loanable funds? A fall in the real interest rate _______. A. increases the quantity of loanable funds demanded down along the demand curve B. decreases the quantity of loanable funds demanded up along the demand curve C. decreases the demand for loanable funds and shifts the demand curve leftward D. increases the demand for loanable funds and shifts the demand curve rightward

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