Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 5P
To determine
The reason why the demand slope of Loanable fund curve is downward to the right.
Concept Introduction:
In the market of loanable funds which is the market where individual wish to borrow fund or save in order to earn interest.
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Students have asked these similar questions
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.
Question 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.
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
%
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- 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) 12 11 10 9 3 2 1 0 Supply Demand 0 100 200 300 400 500 600 700 800 900 1000 1100 1200 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 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 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 towardarrow_forward(Figure: The Market for Loanable Funds II) Use Figure: The Market for Loanable Funds II. An increase in private savings will shift the supply curve for loanable funds to the Interest rate causing the interest rate to r* = 6% E Supplyarrow_forward4. 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).…arrow_forward
- 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_forward4. 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) 0 Supply 100 200 300 400 500 800 LOANABLE FUNDS (Dons of dollars) 700 800 is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied than the quantity of loans the interest rates they charge, thereby the quantity of loanable funds demanded, moving the market toward Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is demanded, resulting in a of loanable funds. This would encourage lenders to the quantity of loanable funds supplied and the equilibrium interest rate ofarrow_forwardUse Figure: The Market for Loanable Funds with Government Borrowing. After an increase in government borrowing, the equilibrium interest rate will rise from 6% to Interest rate (%) 12 10 8 5 4 2 O %, and the amount of private savings will Supply of loanable funds Demand for loanable funds 10 20 30 40 50 60 70 80 90 100 Quantity of loanable funds (billions of dollars)arrow_forward
- QUESTION 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_forward5. 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.) (? Demand Supply Supply Demand LOANABLE FUNDS (Billions of dollars) 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 an increase in the maximum contribution, from $5,000 to $8,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment…arrow_forwardThe Atlantic Investment Tax Credit is a 10% tax credit available to businesses that make specific investments in the Atlantic region and the Gaspe Peninsula. The graph shows the market for loanable funds. Show the impact of this tax credit by moving the proper curve appropriately in the graph. The new equilibrium interest rate is The quantity of loanable funds is $ ક billion Which statement accurately describes the impact of the Atlantic Investment Tax Credit? Interest rate (%) 10 9 8 7 6 5 st 3 2 1 0 0 5 10 15 20 25 30 35 Quantity of loanable funds (in billions) 40 Supply Demand 45 50arrow_forward
- 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.) Demand Supply Supply Demand LOANABLE FUNDS (Billions of dollars) 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 an increase in the maximum contribution, from $5,000 to $8,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to v and the level of investment…arrow_forward5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) Demand Supply Supply Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. INTEREST RATE (Percent) 2)arrow_forwardK Consider the graph to answer the following questions: a. The shift from S, to S₂ represents in the supply of loanable funds. b. With the shift in supply, the equilibrium quantity of loanable funds c. With the change in the equilibrium quantity of loanable funds, the quantity of saving and the quantity of investment ▼ C Real Interest Rate Market for Loanable Funds L241 Loanable Funds ($ per year) S2 S1arrow_forward
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