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- 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. INTEREST RATE (Percent) 10 8 O 0 Supply 100 200 300 400 500 600 Demand 700 800 LOANABLE FUNDS (Billions of dollars) 900 1000 ?Use the graph to answer the question that follows. Quantity of Loanable Funds (S) Assume that the loanable funds market is in equilibrium, as shown in the graph.If households become concerned about retirement income and spend less,what will happen in this market for loanable funds? O The demand for funds will increase, as will the equilibrium interest rate. O Both the demand for funds and the supply of funds will decrease, with an indeterminate impact on the equilibrium interest rate. ) The demand for funds will decrease, and the equilibrium quantity of funds transacted will erease below Fo. O Both the demand for funds and the supply of funds will icrease, with an increase in the quantity of funds transacted. O The supply of funds will increase, and the equilibrium interest rate wi fall blow ro. Real Interest RateThe 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. 8 7 Supply 6 400, 4 Demand 100 200 300 400 500 600 700 800 LOANABLE FUNDS (Billions of dollars) INTEREST RATE (Percent)
- The economy of Dream Island, which is isolated from the rest of the world, has the supply of loanable funds schedule and the demand for loanable funds schedule shown in the table below. As it happens, all of the supplies of loanable funds are from households' savings and the entre demand for loanable funds is from firms' investment demand. Real interest rate (percent per year) Supply of loanable funds (2005 dollars) Demand for loanable funds (2005 dollars) 5 2,000 5,000 7 3,000 4,000 9 4,000 3,000 11 5,000 2,000 a) Draw the demand and supply curves.4. 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 loanable funds, and the downward-sloping blue line represents the demand for loanable funds. INTEREST RATE (Percent) 9 8 0 0 100 Supply Demand 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars)On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves. Supply X Demand 2 10 20 30 40 50 QUANTITY OF LOANABLE FUNDS (Billions of dollars) 12 IN TEREST RATE 10 0 0 60 ģ Demand Supply ? Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1.25 billion. by According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 6% to %. The change in the interest rate causes the level of investment spending to $ billion. by After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to $ billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect. Place the purple line (diamond…
- Supply, S Real Interest rate Demand Loanable funds (billions of dollars per year) Refer to the graph above. Which of the following situations would have caused the shift as shown in the graph? O Taxes are changed so that real interest income is taxed rather than nominal interest income An expected recession decreases the profitability of new investment O The government runs a budget deficit O Technological change increases the profitability of new investmentIn a hypothetical economy, no investment projects are undertaken when the real interest rate is 12 percent or above, 40 projects worth $1 million each are undertaken when the real interest rate is 10 percent, and 40 more projects worth $1 million each are undertaken every time the real interest rate falls by 2 percent until it reaches a value of zero. a. Draw a graph showing the investment demand curve. Plot 7 points in total using the line tool (investment demand curve) given below. Investment Demand Curve 14 Tools 12 investment de 10 8. 6. 4. 40 80 120 160 200 240 280 Investment (2017 $ million) b. If the real interest rate is 6% then $ million of investment will take place in this economy. c. If the real interest rate rises to 4% then investment (Click to select) V to $ million. Real Rate of Return and Interest (%)Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Shift the appropriate curve(s) on the following graph to show how a decrease in the maximum contribution, from $5,000 to $3,000 per year, would affect the market for loanable funds. INTEREST RATE (Percent) pemand Supply QTY OF LOANABLE FUNDS (Billions of dollars) This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to
- Kefer to the following graph to answer the question that follow. Interest rate Line 1 6% 5% Line 2 $300 Savings and investment (billions of dollars) In the figure, at an interest rate of 4%, the: $200 quantity demanded of loanable funds equals the quantity supplied of loanable funds, and equilibrium is reached. quantity demanded of loanable funds is greater than the quantity supplied of loanable funds, and there is a surplus of loanable funds. demand for loanable funds is greater than the supply of loanable funds, and there is a shortage of loanable funds: quantity demanded of loanable funds is greater than the quantity supplied ofThe diagram below show the market for financial capital assuming that national income is constant at Y*. Suppose national saving is reflected by NS and investment demand is reflected by 10. If the real interest rate is i3, there is which will drive the interest rate up until it reaches i * A. an excess supply of national saving O B. an excess demand for private saving C. an excess demand for financial capital D. an excess supply of financial capital O E. an excess demand for investment O F. an excess supply of public saving Real Interest Rate i ₂ Bug NS0 Quantity of financial capital ($) NS1 18Consider the impact of a cut in the interest rate set by the central bank (the "policy rate"), which causes banks to lower interest rates for both borrowers and lenders. Select one or more: U a. Borrowers like Julia will definitely be better off O b. Borrowers like Julia will definitely increase their current consumption O c. If Marco is a saver (not an investor) he will definitely be worse off O d. If Marco is a saver he will definitely decrease his consumption
