Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Question
Chapter 26, Problem 5SPPA
To determine
To explain:
The meaning of market for financial capital, the meaning of financial capital and the reason for no change in demand of loanable funds as well as change in quantity of funds demanded with the rise in interest rate.
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Students have asked these similar questions
If there is a fall in the real interest rate, how does the quantity of loanable funds supplied change?
If there is a rise in the real interest rate, how does the quantity of loanable funds demanded change?
The demand for loanable funds comes from investment
and the supply of loanable funds comes from saving.
Select one:
True
False
Chapter 26 Solutions
Foundations of Economics (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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- a high interest rate can also indicate that something positive is happening in the economy. Describe how positive factors can lead to an increased in the demand for loanable funds and then an increase in the interest rate.arrow_forwardInvestment — End of Chapter Problem Move the appropriate curve or curves in each graph to illustrate the effect of each of the four events on the market for loanable funds. If the event should not impact the market for loanable funds, then leave the graph unchanged.arrow_forwardGraphically 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.arrow_forward
- What is true about equilibrium in the market for loanable funds? A. Savings = gross domestic product (GDP) B. Investment = interest rate C. Interest rate = inflation D. Investment = savingsarrow_forwardUse the loanable funds market to illustrate the effect of the following events on the equilibrium. Illustrate the effects on the interest rate and quantity of investment-savings a) The proportion of retired people in the population goes up. Think that usually retired people generally save less than working people at any interest rate. 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 optimistic about the future profitability of investment spending (assume the budget balance is zero).arrow_forwardConsider the supply and the demand in the market for loanable fund. If Mari purchased construction company’s stocks, to which is it added: Supply or Demand? If Mari borrowed to build her new house, which is it added to: Supply or Demand? Stock: House:arrow_forward
- If the demand for loanable funds by the business sector decreases because of a recession and the demand for loanable funds by government increases by an amount greater than the decreased demand. How is the equilibrium interest rate affected? Use diagram to show the change.arrow_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_forwardThree student have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students' investment projects: Harry 5 percent Ron 8 percent Hermione 20 percent Now suppose the school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market?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_forwardUsing 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.arrow_forwardWhere 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.arrow_forward
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