Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 24, Problem 29APA
(a)
To determine
Explain the inverse relation between
(b)
To determine
Identify the changes in the
(c)
To determine
Identify the change in the supply of loanable funds due to the change in the demand for loanable fund.
(d)
To determine
Identify the changes in the demand for loanable funds and the real interest rate due to the economic expansion.
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Chairman Latrobe, the Supreme Leader of Rolling Rock decided to increase the personal tax rate to fund the defense force.
8) How may this affect the loanable funds market? Explain by describing the change in the demand for, or the supply of, loanable funds.
9) Because of the change decreed by President Thug and your answer to question 8, what is likely to happen to the interest rate and the quantity of funds in the loanable funds market?
10) How will each of these Rolling Rockers feel about President Thug’s decision?
(A) Investor Confidence
(B) The President of Rolling Rock National Bank
Using the loanable funds theory, illustrate the effect of the following on the level of interest rates.A. An increase in expected future income. B. An increase in income levels which would result in an increase in the level of savings.
Graphically Show each scenario of the market for loanable funds and graph the supply and demand for each of the 4 scenarios. Draw the shift occurring (Supply or Demand) and explain what happens to the equilibrium interest rate in for each of the 4 scenarios
1. A breakthrough in medical technology results in many hospitals wanting to buy new equipment.
2. The government budget deficit is reduced by 50%.
3. Foreign investors buy residential property in the United States.
4. People around the world are worried about financial stability in their countries and choose to move their wealth to U.S. financial markets.
Chapter 24 Solutions
Macroeconomics
Ch. 24.1 - Prob. 1RQCh. 24.1 - Prob. 2RQCh. 24.1 - Prob. 3RQCh. 24.1 - Prob. 4RQCh. 24.2 - Prob. 1RQCh. 24.2 - Prob. 2RQCh. 24.2 - Prob. 3RQCh. 24.2 - Prob. 4RQCh. 24.2 - Prob. 5RQCh. 24.3 - Prob. 1RQ
Ch. 24.3 - Prob. 2RQCh. 24.3 - Prob. 3RQCh. 24.3 - Prob. 4RQCh. 24.3 - Prob. 5RQCh. 24.3 - Prob. 6RQCh. 24.4 - Prob. 1RQCh. 24.4 - Prob. 2RQCh. 24.4 - Prob. 3RQCh. 24 - Prob. 1SPACh. 24 - Prob. 2SPACh. 24 - Prob. 3SPACh. 24 - Prob. 4SPACh. 24 - Prob. 5SPACh. 24 - Prob. 6SPACh. 24 - Prob. 7SPACh. 24 - Prob. 8SPACh. 24 - Prob. 9SPACh. 24 - Prob. 10SPACh. 24 - Prob. 11SPACh. 24 - Prob. 12SPACh. 24 - Prob. 13APACh. 24 - Prob. 14APACh. 24 - Prob. 15APACh. 24 - Prob. 16APACh. 24 - Prob. 17APACh. 24 - Prob. 18APACh. 24 - Prob. 19APACh. 24 - Prob. 20APACh. 24 - Prob. 21APACh. 24 - Prob. 22APACh. 24 - Prob. 23APACh. 24 - Prob. 24APACh. 24 - Prob. 25APACh. 24 - Prob. 26APACh. 24 - Prob. 27APACh. 24 - Prob. 28APACh. 24 - Prob. 29APACh. 24 - Prob. 30APA
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Similar questions
- Textbook: Macroeconomics by P. Krugman & R. Wells (5th Edition) Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of percentage points in the expected future inflation rate. How will the change in the expected future inflation rate affect the equilibrium quantity of loanable funds?arrow_forwardb. Using the loanable funds theory, explain what will happen to the real equilibrium interest rate under the following scenarios: (In your discussion describe or show with a graph the change in the supply curve for loanable funds and the change in its intersection with the demand curve for loanable funds). (1) The U.S. Federal Reserve engages in an open market expansion policy to increase the money supply to speed up the economy. (2) The U.S. government has a larger demand for funds to fund a large deficit, so will be seeking to borrow loanable funds by issuing a large amount of new government bonds to sell to the public. (3) There is an expansion, and businesses are expanding and increasing their plans to take on new capital projects, increasing their demand for financing. (4) Wealth and liquidity rises in an economy, resulting in investors and savers more willing to invest/lend funds in an economy.arrow_forwardIn the summer of 2010, Congress passed a far-reaching financial reform bill to attempt to prevent another financial crisis like the one that happened in 2008-2009. We will consider two scenarios related to this bill. 18. In the first scenario, suppose that by requiring firms to comply with strict regulations, the bill increases the cost of investment. Draw a graph showing the consequences of this scenario on the market for loanable funds. What is the result? 19. Now consider the second scenario: Suppose that by requiring firms to comply with strict regulations, the bill increases confidence that savers have with the financial system, making them more likely to save their money there. Draw a graph showing the consequences of this scenario on the market for loanable funds. In this scenario, which curve shifts, and what are the results?arrow_forward
- For each of the following pairs, which bond would you expect to pay a higher interest rate? Explain! a). a bond of the U.S. government or a bond of an East European government b). a bond that repays the principal in year 2015 or a bond that repays the principal in year 2040 c). a bond from Coca-Cola or a bond from a software company you run in your garage d). a bond issued by the federal government or a bond issued by New York Statearrow_forwardWhat is market for loanable funds? Use the analysis of market for loanable fund to analyse the impact of saving incentives and government budget (deficits) toward the interest rate and quantity of loanable funds! (Explain your answer by using graphical approach)arrow_forwardUsing the framework of the supply and demand of loanable funds, analyze the possible effect on the equilibrium interest rate in the U.S. in each of the following independent, hypothetical scenarios. a. The economy heats up, leading to higher wages and decreased unemployment. b. Concerned that the credit rating of US Treasury securities will be downgraded, international investors move some money out of the US. c. Congress approves a budget that decreases spending and increases tax rates, thereby driving the deficit downarrow_forward
- In detail what are some of the factors that affect demand for loanable funds according to the loanable funds theory of interest rate determination and what impact would these have on the demand and supply of funds and on the interest ratearrow_forward19. The Home Builders Association of America reports that there was a dramatic increase in new home construction nationwide last month. Separately they report that the median price for a house increased for the 4th month in a row." In both graphical form and in words, explain what the Loanable Funds model would predict about the direction of interest rates.arrow_forwardUse the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affect 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. (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?arrow_forward
- What factors make up the total demand for loanable funds? The total supply of loanable funds. Please list and define each of these demand and supply factors in the Loanable Funds Theory of Interest.arrow_forwardThe following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the government is experiencing a balanced budget. Assume that the automobile industry is on the verge of bankruptcy and the U.S. government decides to implement a several-billion-dollar bailout plan without a rise in taxes, causing a budget deficit. 1. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. (Please use the image attached) 2. Based on this model, the budget deficit leads to an increase? a decrease? in the level of investment and an increase? a decrease? in the interest rate.arrow_forwardThe 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. NOTE: the first dropdown question options are (fall or rise), the seconds are (decrease or increase), the thirds are (fall or rise), the fourths are (fall or rise), the fifths are (deficit or surplus), the sixths are (decreases or increases), the sevenths are (fall or rise), and the last ones is (crowding out ot increasing)arrow_forward
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