The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. B C A F D₂ S₁ D₁ Refer to Figure 1. A shift of the supply curve from S 2 to S 1 is called O a. a decrease in the demand for loanable funds. O b. a decrease in the quantity of loanable funds demanded. O c. an increase in the supply for loanable funds. O d. an increase in the quantity of loanable funds supplied.

Where does the demand for loanable funds come from in a closed economy? How does a government adopting a policy of taxing investment from the private sector impact the demand for loanable funds? What happens to the equilibrium interest rate following this policy? Illustrate using the supply and demand in the market for loanable funds.

66

14) What could explain what is happening in the graph to the right? a. The government has given investors an investment tax credit, increasing investors appetite for savings. b. The government has removed the tax protected status of IRA accounts, increasing savings. c. The government balances the interest rate Το r1 Eo E1 So $1 budget reducing its debt, and the "crowding out" effect disappears. business desire to obtain funds. 90 91 quantity of loanable funds d. A new technology makes industry much more productive, therefore increasing e. There are many things that could explain what the graph shows us, but we don't have enough information to decide on any of a. thru d. above.

C wrong

Suppose that the demand for laonable funds for car in the Milwaukee area is $11million per month at an interest rate of 10 percent per year, $12million at an interest rate of 9 percent per year, $13million at an interest rate of 8 percent per year and so on. a. If the supply of loanable funds is fixed at $17million, what will be the equilibrium interest rate? b. If the government imposes a usury law and says that car loans cannot exceed 3 percent per year, how big will the monthly shortage (or excess demand) for car loans be?  c. How big will the monthly shortage for car loans be if the usury limit is raised to 7 percent per year?

4.5

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