Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 13, Problem 6P
A
To determine
The effect on the market interest rate when the purchase price of capital increases:
- An increase in the productivity of capital.
- A shift in preference toward present consumption and away from future consumption.
Concept Introduction:
The market of the loanable fund is similar to the market of any good the price of the loanable fund is the interest rate.
B
To determine
The effect on the market interest rate when productivity of capital increases:
Concept Introduction:
The market of the loanable fund is similar to the market of any good the price of the loanable fund is the interest rate.
C
To determine
The effect on the market interest rate when there is a shift in preference toward present consumption and away from future consumption
Concept Introduction:
The market of the loanable fund is similar to the market of any good the price of the loanable fund is the interest rate.
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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
%
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.
_____(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).…
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)
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Similar questions
- 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_forwardQuestion 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.arrow_forward6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S Darrow_forward
- 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) 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_forward1. (Appendix Question) The following table contains data on the relationship between saving and income. Rearrange these data into a meaningful order and graph them on the accompanying grid. The variable on X-axis should be ( Label variables on the graph. → ), and the variable on y-axis should be ( ). 100 Income (per year) Saving (per year) so S-20 50 50 100 20 150 40 -50 50 100 150 The relationship between income and saving is (direct, inverse; positive, negative ). That means, as income increases, the amount of saving (increases, decreases, stays the same). What is the slope of the line? Slope =. The slope shows the amount of changes in savings due to the changes in income. That is, for every $1 increase in income, the amount of increase in saving will be $ The vertical intercept? (= $ when income is C = Vertical changes + Horizontal changes _). The intercept shows the amount of saving (dissaving) occurringarrow_forwardTitle Suppose that the business cycle in Canada is best described by RBC theory. An advance in technology. Description Suppose that the business cycle in Canada is best described by RBC theory. An advance in technology increases productivity. a. Draw a diagram to show the effect of the advance in technology in the market for loanable funds. b. Draw a diagram to show the effect of the advance in technology in the labour market. c. Explain the when-to-work decision when technology advances.arrow_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 oriqinal state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) (?) Supply Demand 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%. 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 spending to Scenario…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.) (?) Supply INTEREST RATE (Percent) Demand LOANABLE FUNDS (Billions of dollars) Demand 0 Supplyarrow_forward6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S D A tax law change that successfully encourages saving will D S ? interest rates, which leads to investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Amira, a rising third-year in college, plans to save $550 from her summer job in order to buy textbooks for the upcoming fall semester. Amira's parents are so impressed with her plans that they offer to pay her an additional 35% interest per month on the money she saves, which means that Amira is now earning a large rate of return on her saving. By the…arrow_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 and the level of investment…arrow_forward2. The supply of saving Suppose that Maria receives a pay raise of $1,050 per year. She can either use the extra money to consume goods and services, or she can save it by depositing it in a bank. For each of the alternative annual interest rates in the following table, indicate how much interest Maria would earn per year on her annual raise if she saves it. (Note: Assume that no income taxes are deducted.) Interest Rate Interest Earned (Dollars) (Dollars) (Percent) 8 20 A lower interest rate gives Maria incentive to save. The following graph shows a variety of possible curves representing the supply of saving.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 v and the level of investment…arrow_forward
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