ECON MICRO
5th Edition
ISBN: 9781337000536
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 2.6P
A
To determine
The effect on the market interest rate when the purchase
- An increase in the productivity of capital.
- A shift in preference toward present consumption and away from future consumption.
Concept Introduction:
The market of the loanable fund is similar to the market of any good the price of the loanable fund is the interest rate.
B
To determine
The effect on the market interest rate when productivity of capital increases:
Concept Introduction:
The market of the loanable fund is similar to the market of any good the price of the loanable fund is the interest rate.
C
To determine
The effect on the market interest rate when there is a shift in preference toward present consumption and away from future consumption
Concept Introduction:
The market of the loanable fund is similar to the market of any good the price of the loanable fund is the interest rate.
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Figure: Supply of Loanable Funds) Use Figure: Supply of Loanable Funds. When the interest rate rises from 6% to 8%, the:
Interest
-ate (%)
12
10
8
6
4
2
S
0 10 20 30 40 50 60 70 80 90
Loanable funds (billions of dollars)
O quantity of loanable funds supplied falls by $20 billion.
supply of loanable funds falls by $10 billion...
quantity of loanable funds supplied rises by $20 billion.
O supply of loanable funds rises by $20 billion.
3. 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.
Supply
Demand
100 200 300 400 500 600 700 800 900 1000 1100 1200
LOANABLE FUNDS (Bons of dollars)
is the source of the supply of loanable funds. As the interest rate rises, the quantity of loanable funds supplied
than the quantity of loans
the interest rates they charge,
the quantity of loanable funds demanded, moving the market
Suppose the interest rate is 5.5%. Based on the previous graph, the quantity of loanable funds supplied is
demanded, resulting in a
of loanable funds. This would encourage lenders to
thereby
the quantity of loanable funds supplied and
toward the equilibrium interest rate of
%
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.
_____(saving/investment) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied ______(decrease/increase).
Suppose the interest rate is 2.5%. Based on the previous graph, the quantity of loanable funds supplied is ______(greater/less) than the quantity of loans demanded, resulting in a ______(surplus/shortage) of loanable funds. This would encourage lenders to ______(raise/lower) the interest rates they charge, thereby ______(increasing/decreasing) the quantity of loanable funds supplied and _______(increasing/decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ________%(how many percent).…
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- 5. 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) 12 11 10 10 3 2 1 0 Supply Demand 100 200 300 400 500 600 700 800 900 1000 1100 1200 LOANABLE FUNDS (Billions of dollars)arrow_forwardQuestion 29 How would this expenditure affect the loanable funds market? [Select] [Select] Supply of loans shifts to the right. Demand for loans shifts to the right.arrow_forward1. (Appendix Question) The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. The variable on X-axis should be ( Label variables on the graph. → ), and the variable on y-axis should be ( ). 100 Income (per year) Saving (per year) so S-20 50 50 100 20 150 40 -50 50 100 150 The relationship between income and saving is (direct, inverse; positive, negative ). That means, as income increases, the amount of saving (increases, decreases, stays the same). What is the slope of the line? Slope =. The slope shows the amount of changes in savings due to the changes in income. That is, for every $1 increase in income, the amount of increase in saving will be $ The vertical intercept? (= $ when income is C = Vertical changes + Horizontal changes _). The intercept shows the amount of saving (dissaving) occurringarrow_forward
- Dd.27.arrow_forward4. The market for loanable funds and government policy The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) Supply 17 INTEREST RATE (Percent) LOANABLE FUNDS (Billions of dollars) Demand Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 18%. Now suppose there is an increase in the tax rate on interest income, from 18% to 22%. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to Shift the appropriate curve on the graph to reflect this change. This change in the tax…arrow_forward28. What is the level of investment, I? (A) $250 billion. (B) $305 billion. (C) $345 billion. (D) $555 billion. The next two questions involve the following information. The real interest rate, r, is the nominal interest rate, i, minus inflation, 7. In formal terms, r = i- T. For example, if an investment offers an annual return of 5 percent, and inflation is 2 percent, then the real interest rate is 3 percent. 29. You purchase a $1,000 face-value bond for $800. The coupon is $100 per year, and inflation is 4 percent per year. What is the nominal yield on the bond? (A) 6 percent. (В) 8.5 рercent. (C) 10 percent. (D) 12.5 percent. 30. You purchase a $1,000 face-value bond for $800. The coupon is $100 per year, and inflation is 4 percent per year. What is the real coupon rate on the bond? (A) 6 percent. (В) 8.5 percent. (C) 10 percent. (D) 12.5 percent.arrow_forward
- Question 20 Since 1961, real GDP in Canada has grown 1) in a random unpredictable manner relative to the population. 2) more slowly than the population. 3) at exactly the same rate as population growth in all periods. as rapidly as the population. 5) more rapidly than the population. 4)arrow_forwardQUESTION 9 Use the following diagram to answer this question The accompanying graph shows the market for loanable funds in equilibrium. Interest rate (%) 12 10 8 6 4 0 XH 2 3 E 4 6 5 Quantity of loanable funds (trillions of dollars) S Which of the following might produce a new equilibrium interest rate of 2% and a new equilibrium quantity of loanable funds of $5 trillion? OA. Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories. ⒸB. Congress decreases the tax rate on interest income. C. Capital inflows from foreign citizens are declining. D. The U.S. government offers a tax credit for firms that built new factories in the U.S.arrow_forward6. Use the following table to answer the question: Items Cash receipts from farm marketing Receipts of government payments Other income from farm sources Production expenses Value of real estate assets Items Value of non-real estate assets Financial assets Liabilities a. What is the Gross Farm Income? b. What is the Net Farm Income? Dollar $750,000 $150,000 $100,000 $400,000 $10 million Dollar $2 million $4 million $9 millionarrow_forward
- D4) Finance please describe the fdi inflow in zimbabwe as a percentage of gdp and explain the possible reasons for the fluctuationsarrow_forward2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $1,800 million. Enter the amount for government purchases. National Income Account Value (Millions of dollars) Government Purchases (G�) Taxes minus Transfer Payments (T�) 585 Consumption (C�) 675 Investment (I�) 675 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S)National Saving (�) = = G - TG - T = = I� million Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private SavingPrivate Saving = = = = million Public SavingPublic…arrow_forward2. Economists in Funlandia, a closed economy, have collected the following information about the economy for a particular year: Y = 10000, C = 6000, T = 1500 and G = 1700. (a) What is the amount of private saving? (b) What is the amount of public saving? (c) What is the amount of national saving? (d) Suppose that the amount of investment in the economy, I, relates to the real interest rate r in the following manner: I = 3300 – 100r. What is the level of r so that all the saving in the economy goes into investment?arrow_forward
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