17. Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the interest rate if each of the following events occur. Assume that there are no capital inflows or outflows. a. The government reduces the size of its deficit to zero. b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero. c. At any given interest rate, businesses become very fir of invest

Interest Rate% 12% 10% 8% 6% 4% 2% 0 5 10 15 20 25 30 35 40 45 50 Supply of Savings Select one: a. The economic dips into a recession and firms see profits fall b. Firms become more optimistic about their expected profits c. An increase in business taxes d. A decrease in household wealth Quantity of loanable funds (billions) Refer to the graph above. Which of the following would cause interest rates to increase? Ti Demand for Borrowing

1) Using a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if: a reduction in military spending moves the government’s budget from deficit into surplus. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.

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) 10 9 1 0 0 Supply Demand 100 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars) ? is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied Suppose the interest rate is 4.5%. Based on the previous graph, quantity of loanable funds supplied is demanded, resulting in a of loanable funds. This would encourage lenders to the quantity of loanable funds supplied and the equilibrium interest rate of % than the quantity of loans the interest rates they charge, thereby the quantity of loanable funds demanded, moving the market toward

If the interest rates increase this will _____ the quantity of loanable funds demanded, and if the interest rates decrease this will______it. Select one: a. increase; reduce b. increase; increase c. reduce; increase Od. reduce; reduce

8 Demand, Supply 7 10 4 REAL INTEREST RATE (Percent) 3 2 - 10 20 30 40 50 60 70 80 QUANTITY OF LOANABLE FUNDS (Billions of dollars) Refer to Figure 33-1. If the real interest rate is 3 percent, the quantity of loanable funds demanded is $50 billion, and the quantity supplied is $30 billion. $20 billion, and the quantity supplied is $60 billion. $50 billion, and the quantity supplied is $60 billion. $30 billion, and the quantity supplied is $50 billion.

5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand Supply (?) Scenario 1: 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. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year.

17. What makes up the supply curve in the loanable funds market? Why does this curve have a positive relationship with the real interest rate?