In the loanable funds model, the country’s stock of “investment” comes from: Production firms renting equipment High real interest rates Rental firms purchasing new capital to rent out to production firms Foreign firms
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5. In the loanable funds model, the country’s stock of “investment” comes from:
- Production firms renting equipment
- High real interest rates
- Rental firms purchasing new capital to rent out to production firms
- Foreign firms
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- Table below shows total demand and supply of loanable funds (in RM billions) in an imaginary economy. Quantity demanded Interest rate of loanable funds Quantity supplied of loanable funds (percent) 85 4 72 80 6 73 75 8 75 70 10 77 65 12 79 60 14 81 A. Graph the market for loanable fund of this economy based on the data above and indicate the equilibrium quantity of loanable funds. B. Calculate the surplus or shortage at each level of interest rate. C. suppose the demand for loanable funds increases by RM 7 billion at each level of interest rate, indicate the effect of this changes on the equilibrium interest rate and quantity of loanable funds on your graph. |What do loanable funds finance? What is the source of loanable funds? Loanable funds finance _______. A. business investment, the government budget surplus, and international borrowing B. business investment, the government budget deficit, and international investment or lending C. private saving, the government budget surplus, and international borrowing D. private saving, the government budget deficit, and international investment or lending12. Suppose the interest rate decreases. Other things constant, how will the loanable funds market be affected? a. The demand for loanable funds curve will shift to the right. b. The demand for loanable funds curve will shift to the left. c. The quantity of loanable funds demanded will increase. d. The quantity of loanable funds supplied will increase. 13. Suppose a research lab fired a chemist, and then an environmental protection group hired the chemist at the same salary. What would be the net effect of these events on aggregate demand? a. The aggregate demand would shift rightward. b. The aggregate demand would shift leftward. c. The aggregate demand would become steeper. d. The aggregate demand would remain the same.
- 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 answea. Consider the Market for Loanable Funds in a closed economy. What would be the impacts of the following events on interest rates and investment. i. The government introduces a tax credit for savings accounts of up to $10,000 per year. ii. The government introduces a tax credit for savings accounts of up to $10,000 per year, and at the same time it repeals an investment tax exemption provision. iii. The government raises the tax rates. iv. The government issues bonds worth $10 billion. b. In a closed economy GDP = $1,400, private saving = $225, government budget deficit = $15, and government spending $25 (all numbers are in billions). Calculate national saving, taxes, and consumption. %3DUse the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affects the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit.State, explain and draw the loanable funds diagram for i,ii and iii. (i) which which loanable funds curve would this policy affect?(ii) which way would the loanable funds curve shift?(iii) what would be the the impact on interest rates?
- K Consider the graph to answer the following questions: a. The shift from S, to S₂ represents in the supply of loanable funds. b. With the shift in supply, the equilibrium quantity of loanable funds c. With the change in the equilibrium quantity of loanable funds, the quantity of saving and the quantity of investment ▼ A CI Real Interest Rate Market for Loanable Funds L₂ L1 Loanable Funds ($ per year) S₁ QSupply 6 D1 D2 Consider the loanable funds market outlined above. Which of the following could explain a shift from D1 to D2? a. Firms increase their purchases of new equipment due to heightened market optimism about the future. b. The government increases taxes, resulting in a budget surplus. C. A new tax law is introduced which encourages people to save less and consume more. d. A new tax law is introduced which encourages people to save more and consume less.1. If the following policies were implemented, how would it affect the market for loanable funds, interest rates, investment and economic growth. Explain by using diagrams.a) A change in tax code that might increase private saving. b) Increase in government spending and also budget deficits.
- 3. The meaning of saving and investment Classify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Dmitri purchases a new condominium in San Diego. Caroline purchases new ovens for her cupcake-baking business. Antonio purchases a certificate of deposit at his bank. Frances purchases stock in Goohoo, an information technology company.The explanation for the slope of the A. supply of loanable funds curve is based on the logic that a higher real interest rate leads to lower saving. B. supply of loanable funds curve is based on the logic that a higher real interest rate leads to higher saving. C. demand for loanable funds curve is based on the logic that a higher interest rate leads to higher saving. D. demand for loanable funds curve is based on the logic that a higher interest rate leads to lower saving.1. In the model of the market for loanable funds, which of the following best describes why the supply curve is upward sloping? a The higher the interest rate, the more likely households are to spend b The higher the interest rate, the less likely firms are invest c The higher the interest rate, the more likely households are to borrow d The higher the interest rate, the more likely households are to save
