Which of the following is true? Question 37Answer a. The loanable funds model is essentially a model that determines the short-term real rate of interest. b. The money market model is essentially a model that determines the short-term real rate of interest. c. The money market model is essentially a model that determines the short-term nominal rate of interest. d. The loanable funds model is essentially a model that determines the long-term nominal rate of interest.

Which of the following is true? Question 37Answer a. The loanable funds model is essentially a model that determines the short-term real rate of interest. b. The money market model is essentially a model that determines the short-term real rate of interest. c. The money market model is essentially a model that determines the short-term nominal rate of interest. d. The loanable funds model is essentially a model that determines the long-term nominal rate of interest.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a period in which stock prices are very high, such that investors begin to think that stocks are overvalued, and their valuations are very uncertain. If investors decide to move their money into much safer investments, would this affect general interest rate levels? In your answer, use the loanable fund's framework to explain how the supply of or demand for loanable funds would be affected by the investor actions and how this force would affect interest rates
TOPIC: Classical economists and interest rate flexibility
Using the framework of the supply and demand of loanable funds, analyze the possible effect on the equilibrium interest rate in the U.S. in each of the following independent, hypothetical scenarios. a. The economy heats up, leading to higher wages and decreased unemployment. b. Concerned that the credit rating of US Treasury securities will be downgraded, international investors move some money out of the US. c. Congress approves a budget that decreases spending and increases tax rates, thereby driving the deficit down
Show the effect on the real interest rate and equilibrium quantity of loanable funds of a decrease in the demand for loanable funds and a smaller decrease in the supply of loanable funds. Draw a demand for loanable funds curve. Label it DLF0. Draw a supply of loanable funds curve. Label it SLF0. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF1. Draw a curve that shows a smaller decrease in the supply of loanable funds. Label it SLF1. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
Read Kiyotaki (1998). Consider the model in section 2 of the paper. Suppose there is no borrowing constraint (i.e., assume is arbitrarily large). Also assume that a = 1.2, B=0.9, y = 1.05, 8 = 0.1, and n = 4. (The notations of variables and parameters follow Kiyotaki (1998). Just in case, & denotes the lower case of Delta in the Greek alphabet.) Reference: Kiyotaki, N. (1998). "Credit and Business Cycles." The Japanese Economic Review, volume 49, issue 1, (You can obtain a free electronic copy of this article through the university library's website. If you do not know how, please ask the librarians.) Answer the following questions. pages 18-35.
In the market for loans, suppose that the real interest rate is lower than the equilibrium real interest rate. Saving is Select one: a. greater than investment, and the real interest rate will fall. b. less than investment, and the real interest rate will rise. c. equal to investment, and the real interest rate will rise. d. None of the above.
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Suppose there are two types of investment in the economy: business fixed investment and residential investment. Suppose that loanable fund market is in equilibrium and the government grants an investment tax credit only for business investment. How does this policy affect the supply and demand for loanable funds, the equilibrium interest rate and equilibrium quantity of loanable funds? Use graph to explain your answer.
Let's say that due to political turmoil in the US and abroad, people all over the world start to lose confidence in American securities. Both Americans and foreigners prefer to do their financial investment elsewhere. As a result, we'd expect the supply of loanable funds to shift to the right and the real interest rate to fall the supply of loanable funds to shift to the left and the real interest rate to rise the supply of bonds to shift to the right and the real interest rate to fall the supply of bonds to shift to the left and the real interest rate to rise
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.
A stock market boom of 2019 increased wealth by trillions of dollars Explain the effect of this increase in wealth on the equilibrium real interest rate, investment, and saving The graph shows the market for loanable funds. Show the effect of a stock market boom that increases wealth Draw either a new supply curve labeled SLF, or a new demand curve labeled DLF, Draw a point to show the new equilibrium real interest rate and the new equilibrium quantity of loanable funds the equilibrium real interest rate and A stock market boom OA raises, decreases saving and increases investme OB. raises; increases saving and decreases investment OC. raises; decreases investment and saving OD. lowers; increases saving and investment 0 10.0 90- 8.0 70 60 50- 40- 30- 2.0 104 Real interest rate (percent per year) 5.0 SLF 00- DLF G 10 10 12 14 16 10 Loanable funds (billions of 2012 dollars) >>> Draw only the objects specified in the question
] In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change?