### 3. Supply and demand for loanable fundsThe 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 Explanation:- **X-axis**: Represents the quantity of loanable funds available in the economy, measured in billions of dollars. The scale ranges from 0 to 600.- **Y-axis**: Represents the interest rate, measured in percent. The scale ranges from 0 to 6 percent.- **Orange Line**: The upward-sloping supply line indicates that as the interest rate increases, the quantity of loanable funds supplied increases.- **Blue Line**: The downward-sloping demand line indicates that as the interest rate decreases, the quantity of loanable funds demanded increases.- **Equilibrium Point**: The intersection of the supply and demand lines. At this point, the supply of loanable funds equals the demand for loanable funds. In this graph, the equilibrium point is at an interest rate of 3% and a quantity of 300 billion dollars of loanable funds.The graph visually demonstrates how the forces of supply and demand determine the market interest rate and the quantity of loanable funds in a closed economy. ### Loanable Funds Market Analysis#### Graph DescriptionThe graph illustrates the relationship between the interest rate and the quantity of loanable funds in billions of dollars. It features the following elements:- **Interest Rate (Vertical Axis)**: Ranges from 0 to 4%.- **Loanable Funds (Horizontal Axis)**: Ranges from 0 to 600 billion dollars. The graph includes three lines:1. **Orange Line (Sloping Upward)**: Represents the supply of loanable funds. It indicates that as the interest rate increases, the quantity of loanable funds supplied also increases.2. **Blue Line (Sloping Downward)**: Represents the demand for loanable funds. It indicates that as the interest rate decreases, the quantity of loanable funds demanded increases.3. **Black Vertical Line at 3%**: This is a reference line to help visualize changes in supply and demand around the 3% interest rate.#### Text Explanation and Analysis**______** is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded **______**.Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is **______** than the quantity of loans demanded, resulting in a **______** of loanable funds. This would encourage lenders to **______** the interest rates they charge, thereby **______** the quantity of loanable funds supplied and **______** the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of **______** %.

Demand for loanable funds shows the negative relationship between interest rate and quantity of…

3. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loa funds, and the downward-sloping blue line represents the demand for loanable funds. Supply Demand 100 200 300 400 500 LOANABLE FUNDS (Billions of dollars) A INTEREST RATE (Percent) 0 0 600

3. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loa funds, and the downward-sloping blue line represents the demand for loanable funds. Supply Demand 100 200 300 400 500 LOANABLE FUNDS (Billions of dollars) A INTEREST RATE (Percent) 0 0 600

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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17. Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the interest rate if each of the following events occur. Assume that there are no capital inflows or outflows. a. The government reduces the size of its deficit to zero. b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero. c. At any given interest rate, businesses become very optimistic about the future profitability of invest- ment spending. Assume the budget balance is zero. Interest rate 1 х S D Q₁ Quantity of loanable funds
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Question 19 The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects. government households firms banks
N6 Assume the US market for loanable funds is in equilibrium. Describe how an increase in the federal budget deficit will, all else equal, affect (A) the equilibrium real interest rate, (B) the equilibrium quantity of loans exchanged, and (C) the level of private investment spending.
The demand for loanable funds has a ________ slope because the lower the interest rate, the ________ number of investment projects are profitable, and the ________ the quantity of loanable funds demanded. A. negative; lesser; greater B. positive; lesser; lesser C. negative; greater; greater D. positive; greater; greater E. negative; greater; lesser QUESTION 14 The statement "This Dell laptop costs $1,200" illustrates which function of money? A. Liquidity. B. Medium of exchange. C. Standard of deferred payment. D. Store of value. E. Unit of account.
Construct the market for loanable funds and use it to illustrate and explain each of the following:a) How an increase in the government budget deficit will affect equilibrium interest rate and investment spending of firms, other factors constantb) How an increase in household savings as they become more financial literate will affect equilibrium interest rate and investment spending of firms, other factors constantc) How an increase in business confidence will affect equilibrium interest rate and investment spending of firms, other factors constant.
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Savings, Investment, and the Financial System - End of Chapter Problems 1. Given the following information about the closed economy of Brittania, what is the level of investment spending and private savings, and what is the budget balance? Assume there are no government transfers. GDP $1400.00 million C $840.00 million T $310.00 million G $280.00 million I- $ million Private savings $ million Budget balance $ million National savings $ million
4. The money supply, the loanable funds market, and interest rates Changes in the money supply affect the interest rate through changes in the supply of loans, Real GDP, the price level, and the expected inflation rate. True or False: The income effect describes a change in the interest rate due to a change in the Real GDP. True O False The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the Real GDP. INTEREST RATE Adjust the following graph to show the effect of this increase in the Real GDP. QUANTITY OF LOANABLE FUNDS The liquidity effect The price-level effect SLE The income effect The expectations effect DLF ܘ ܘ Which of the following refer to changes that affect the demand for loanable funds but not the supply? Check all that apply. DLF SLF (?)
What is demand for Loanable Funds and what are the fields where from these Demand for Loanable funds comes?
Over time how do changes in the demand for loanable funds and the supply of loanable funds change the real interest rate? Over time,_______. A. the demand for loanable funds trends downward, the supply of loanable funds trends upward, and the real interest rate trends upward. B. both the demand for loanable funds and the supply of loanable funds trend upward, and the real interest rate also trends upward. C. the demand for loanable funds trends upward, the supply of loanable funds trends downward, and the real interest rate trends upward. D. both the demand for loanable funds and the supply of loanable funds trend upward, but the real interest rate has no trend.