Suppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 10 percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on. If the supply of loanable funds is fixed at $18 million, what will be the equilibrium interest rate?

Suppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 10 percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on. If the supply of loanable funds is fixed at $18 million, what will be the equilibrium interest rate?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the standard loanable funds market graph, … …an increase in the supply of loanable funds (rightward shift)... Group of answer choices A) none of the other options. B) could be caused by a tax increase for individuals on interest earned from savings accounts. C) would cause an increase in the real interest rate. D) could be caused by a tax break for businesses on investment spending. E) would cause a decrease in the real interest rate.
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1. What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens
(Figure: Market for Loanable Funds 2) Based on the graph, if business taxes increase, the demand for loanable funds curve will shift from to and the new equilibrium will be at point holding supply constant at So. So Real Interest Rates (%) Do; D₁; c Do; D₁; b D₁; Do; a a b Loanable Funds ($) d S₁ Do D₁
2. An individual has an intertemporal utility function that is rational, monotonic, and strictly convex. She can borrow/lend at the interest rate, r, but does not have access to human capital. She is currently consuming a bundle such that MRSx₁x2 >1+r. How many of the following statements COULD BE true? [HINT: try drawing a picture] 0 X1x2 The bundle is optimal (i.e. maximizes her utility). If the individual is consuming both goods, she could do better by consuming less today and consuming more tomorrow. She is at a corner solution in which she only consumes tomorrow. a. 1 b. 2 c. 3 V. d. None of the above statements could be true.