Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds. What are the new equilibrium real interest rate and the quantity of loanable funds? 4.5 4.0 3.5 3.0 Interest rate 2.5 2.0 5.0 Supply

Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds. What are the new equilibrium real interest rate and the quantity of loanable funds? 4.5 4.0 3.5 3.0 Interest rate 2.5 2.0 5.0 Supply

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.
The graph below represents the market for loanable funds for an economy. Use the graph to answer the following questions. real interest rate 6% 51000 Loanable fund $ Assume there currently is a surplus in the market for loanable funds. The current real interest rate is I Select) the equilibrium real interest rate. As the market moves to the equilibrium real interest rate we expect I Select ] Demand for loanable funds comes from the activities of ISelect) 13
Macmillan Learning U The graph depicts the market for loanable funds. Shift the appropriate curves to indicate what will happen to the market if there is an improvement in the technology firms use in production. As a result of this change, the real interest rate is now % Real interest rate 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 and the quantity of funds is $ billion. 0.5 Supply Demand 0.0 0 5 10 15 20 25 30 35 40 45 50 Loanable funds (in billions)
Which of the following is one of the reasons that the demand curve for loanable funds is downward sloping? A lower real interest rate discourages domestic investors from purchasing foreign securities and encourages foreign investors to purchase domestic securities. A higher real interest rate encourages people to save. OA lower real interest rate discourages people from saving. OA higher real interest rate makes borrowing more expensive, Which of the following is one of the reasons that the supply curve for loanable funds is upward sloping? A higher real interest rate makes borrowing less expensive. OA lower interest rate makes borrowing less expensive. OA lower real interest rate encourages domestic consumers to purchase foreign securities and discourages foreigners from purchasing domestic securities. A lower real interest rate makes saving less appealing.
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. Supply 5 Demand 1 100 200 300 400 500 600 LOANABLE FUNDS (Billions of dollars) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is than the quantity of loans ▼ of loanable funds. This would encourage lenders to the interest rates they charge, thereby demanded, resulting in a the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward 0% the equilibrium interest rate of INTEREST RATE (Percent)
Real interest rate (percent per year) 10 2 0 DLF 150 300 450 600 750 900 Loanable funds (billions of 2009 dollars) In the above figure, technological progress that increases the expected profit will shift the demand for loanable funds curve leftward. shift the demand for loanable funds curve rightward. have no effect on the demand for loanable funds curve. make the demand for loanable funds curve become horizontal.
Step 2 Determine the equilibrium real interest rate. The table below is broken down by Month, Real Interest Rate (%), Loanable Funds (trillions of $), Exogenous Change, Equilibria (increases, decreases, or no change. Use the data table to determine the equilibrium real interest rate after certain factors change: Equilibria (increases, decreases, or no change) Month Real Interest Loanable Funds Exogenous Rate (%) (trillions of $) Change 3 no change no change January 3% April 3% 4 increased fund ? supply decreased fund July 4% supply December 3% 3 increased fund ? demand
(Figure: Market for Loanable Funds 2) Based on the graph, if business taxes increase, the demand for loanable funds curve will shift from to and the new equilibrium will be at point holding supply constant at So. So Real Interest Rates (%) Do; D₁; c Do; D₁; b D₁; Do; a a b Loanable Funds ($) d S₁ Do D₁
If expectations about future income change, there is no change in saving until income actually changes. a decrease in saving if people expect income to increase in the future. an increase in saving if people expect income to increase in the future. a decrease saving if people expect income to decrease in the future. a change in the quantity of loanable funds supplied and a movement along the supply of loanable funds curve.
Suppose the real interest rates in the United States and Switzerland are both 2%. Now suppose that the Federal Reserve in the United States conducts monetary policy that in turn raises domestic interest rates. Assume there are no policy changes in Switzerland and that their real interest rates stay steady at 2%.
Show graphically and explain how an increase in household confidence about future income affects the loanable funds market