Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 26, Problem 4QCMC
To determine
The effect of the save more for retirement on the loanable fund market.
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If a popular TV show on personal finance convincesAmericans to save more for retirement, the_________ curve for loanable funds would shift,driving the equilibrium interest rate _________.a. supply; upb. supply; downc. demand; upd. demand; down
Use the graph to answer the question that follows.
Real interest
rate %
r
Dif
q
q'
Quantity of
loanable funds $
The graph shows a change in an economy after the government's decision to provide tax benefits to businesses in an effort to increase investment. What is the new point of equilibrium in the economy's loanable funds market?
O o
Or
O o
O q
Or
o'
Sif
D'If
There is recently an increase in private saving in Canada. Assume this occured by a drop in autonomous consumption.
a. what happens to the supply of loanable funds? Shift right, shift left, no shift
b. what happens to the demand for loanable funds? Shift right, shift left, no shift
c. what happens to the real interest rate? up, down, stay the same
Chapter 26 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- 1 a. 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 answearrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase.arrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase. Clear my choicearrow_forward
- d. A reduction in the cost of acquiring new physical capital creates many new profitable opportunities for firms. The Loanable Funds Market Interest rate This will: Quantity of dollars Interest rate This will: I Oraise the equilibrium interest rate and decrease the quantity of funds saved and invested. raise the equilibrium interest rate and increase the quantity of funds saved and invested. lower the equilibrium interest rate and decrease the quantity of funds saved and invested. lower the equilibrium interest rate and increase the quantity of funds saved and invested. e. The government decides to increase government purchases (G), which increases the size of the budget deficit. 0 The Loanable Funds Market Quantity of dollars S I O S Ø Oraise the equilibrium interest rate and increase the quantity of funds saved and invested. O raise the equilibrium interest rate and decrease the quantity of funds saved and invested. Olower the equilibrium interest rate and decrease the quantity of…arrow_forwardWhat is the effect of a fall in the real interest rate on the demand for loanable funds? A fall in the real interest rate _______. A. decreases the demand for loanable funds and shifts the demand curve leftward B. decreases the quantity of loanable funds demanded up along the demand curve C. increases the demand for loanable funds and shifts the demand curve rightward D. increases the quantity of loanable funds demanded down along the demand curve Thanks!arrow_forwardUse 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 Ratearrow_forward
- What is the effect of a fall in the real interest rate on the demand for loanable funds? A fall in the real interest rate _______. A. increases the quantity of loanable funds demanded down along the demand curve B. decreases the quantity of loanable funds demanded up along the demand curve C. decreases the demand for loanable funds and shifts the demand curve leftward D. increases the demand for loanable funds and shifts the demand curve rightwardarrow_forwardConsider the following figure which shows the loanable funds market (where SLF is the supply of loanable funds and DLF is the demand for loanable funds). If the real interest rate is 9 per cent, then a. there is a surplus in the loanable funds market b. there is a shortage in the loanable funds market. c. the demand for loanable funds curve will shift rightward. d. there will be a leftward shift in the demand for loanable funds curve.arrow_forwardOver 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.arrow_forward
- In the graph you've just made, how does a tax on interest income influence the real interest rate and investment? A tax on interest income _______ loanable funds, which _______ the real interest rate and _______ investment. A. decreases the demand for; raises; decreases B. decreases the supply of; raises; decreases C. increases the supply of; lowers; increases D. increases the demand for; lowers; increases Screenshot attached thanksarrow_forwardHi I want to ask what will happen to the market of loanable funds and the natural level of output in long run when the government runs a budget surplus? what will the graph of the loanable funds market look like?arrow_forwardShow 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.arrow_forward
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