The sudden outbreak of the pandemic has negatively affected consumer confidence and caused uncertainty regarding future income, and in particular the risk of future unemployment. The propensity of households to save has reached unprecedented levels in response to COVID-19. Investor confidence has dropped as well. Indicate how supply and demand for loanable funds can be affected. Use the diagram of the market of loanable funds to show the respective shifts of the curves and explain what possibly happens to the interest rate and investment in response to the changes.

The sudden outbreak of the pandemic has negatively affected consumer confidence and caused uncertainty regarding future income, and in particular the risk of future unemployment. The propensity of households to save has reached unprecedented levels in response to COVID-19. Investor confidence has dropped as well. Indicate how supply and demand for loanable funds can be affected. Use the diagram of the market of loanable funds to show the respective shifts of the curves and explain what possibly happens to the interest rate and investment in response to the changes.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Using the concepts of real interest rate and expected rate of return, test the relationship between saving and capital investment.
Along with the onset of the pandemic, capital inflows to Monotreme declined. Analyze the impact of this using the loanable funds market model. Would this impact supply of funds or demand for funds curve? How would the equilibrium values of real interest rate and quantity of loans change in response?
3
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
As the real interest rate falls: a) the supply of loanable funds increases. b) the quantity supplied of loanable funds decrease! c) more saving is supplied to the market. d) the supply of loanable funds decreases.
The table below shows Demand and Supply for loanable fund at given time. Real interest rate Quantity of loanable fund demanded (billion $) Quantity of loanable fund supplied (billion $) 0.01 1000 400 0.02 950 450 0.03 900 500 0.04 850 550 0.05 800 600 0.06 750 650 0.07 700 700 0.08 650 750 0.09 600 800 0.10 550 850 0.11 500 900 0.12 450 950 0.13 400 1000 0.14 350 1050 0.15 300 1100 Instructions: Using excel, find the equilibrium real interest rate and quantity of loanable fund. show the equilibrium on a graph. If this country experiences a recession business cycle phase that decreases the demand for loanable fund by $200 billion. Find the new equilibrium real interest rate and quantity of loanable fund. Show the shift on the graph. list Two factors that shift SLF rightward and two factors that shift DLF rightward What is the meaning of crowding out?…
Suppose Wonderland is a closed economy with a consumption function of C =500 + 0.6 x (Y-T).Recently, a legislator proposes to raise the expenditure on infrastructure.How would this affect national saving, real interest rate and investment inWonderland in the long run? Explain using the concept of loanable fund market.
Question 8 The market for loanable funds in country 1 is described by the equations I = 18 - 6r and S = 8+4r; in country 2, it is I = 18 - 4r and S = 8 + 2r. a) Find the relationships between net capital outflow and the world interest rate (rw) in the two countries. b) What is the nature of these relationships? (Are they both positive, both negative, or one positive and the other negative?) c) Calculate the world equilibrium interest rate. d) How can you reconcile the result from part b with the one from part c?
Show the effect on the real interest rate and equilibrium quantity of loanable funds of an increase in the demand for loanable funds and a smaller increase in the supply of loanable funds. 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. Real interest rate (percent per year) 12.0 Draw a curve that shows an increase in the demand for loanable funds. Label it DLF,. 10.0- Draw a curve that shows a smaller increase in the supply of loanable funds. Label it SLF,. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2. 8.0- 6.0- 4.0- 2.0- 0.0+ 0.0 1.0 2.0 3.0 Loanable funds (trillions of 2012 dollars) 4.0 5.0 >>> Draw only the objects specified in the question. Click the graph, choose a tool in the palette and follow the instructions to create your graph. MacBook Air DD DII F11 F10 F9 000 000 F8 F7…
19. The Home Builders Association of America reports that there was a dramatic increase in new home construction nationwide last month. Separately they report that the median price for a house increased for the 4th month in a row." In both graphical form and in words, explain what the Loanable Funds model would predict about the direction of interest rates.
After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. Jolien decides not to take out a loan to fund expanding her grocery store because she projects it will only earn a return of 4%4%. Osi closely follows the market for United States Treasury Bonds. He is willing to invest in them anytime the rate of return is 5%5% or higher, and sees that this is the case. In order to open a new car wash facility expected to return 13%13%, Julius secures a loan. John will shift his stock investments to corporate bonds when they return at least 10%10%. They do not, so he stays with stocks
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? 5.0 4.5 4.0 3.5 3.0 Supply Real interest rate: Interest rate 2.5 2.0 1.5 1.0 0.5 0.0 0 20 40 40 % Loanable funds: $ Demand 60 80 100 120 Loanable funds (millions) 140 160 180 200 million