Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 7IAPA
To determine
To explain:
The reason for US savings rate might have increased, and its effect on the supply of loanable funds.
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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?
An economy's saving rate increased from -0.1 percent in 2015 to 2.0 percent in 2016 to 2.4 percent in 2017, to 2.9 percent in 2018, and to 3.0 percent in 2019.
Explain why the saving rate might have increased and its effect on the supply of loanable funds.
The saving rate might have increased because
The increase in the saving rate will
the supply of loanable funds.
A. financial market turmoil could decrease wealth and expected future income; increase
B. the demand for loanable funds could have decreased; decrease
C. financial market turmoil always increases wealth and expected future income; increase
D. financial market turmoil could decrease wealth and expected future income; decrease
O E. the demand for loanable funds could have decreased; increase
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1. What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens
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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- Scenario 1: The economy enters a recession driving down the demand for homes nationwide. 1. What is the expected impact on the demand for loanable funds? 2. What effect will this change have on the interest rate? 3. How will this change the behavior of consumers?arrow_forwardScenario 1: The economy enters a recession driving down the demand for homes nationwide. What is the expected impact on the demand for loanable 2. What effect will this change have on the interest rate? 1. 3. How will this change the behavior of consumers? Scenario 2: The government increases deficit spending by $100 Billion dollars to invest in green energy throughout the country. 1. What effect will this have on the demand for loanable funds? Increases the demand. 2. What effect will this change have on the interest rate? The interest rate will also increases because when the demand increases the interest rate also increases. 3. How willl this change the behavior of consumers?arrow_forwardsummarize how savers, financial institutions and borrowers interact to help the economy to create capital.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_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_forwardLista the factors that affect the supply side of the loanable funds market. which factors shifts the curve?arrow_forward
- Scenario 3: Unemployment decreases throughout the country causing a dramatic increase in income for millions of Americans. Causing Americans to save more. 1. What is the likely effect of this increase in income on the supply of loanable funds? 2. What effect will this change have on the interest rate?arrow_forwardc. If the Federal Reserve sells government bonds, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable fundsarrow_forwardWhat 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_forward
- The table below shows Demand and Supply for loanable fund at given time. Real interest rate Quantity of loanable fund demanded (billion $) Quantity of loanable fund supplied (billion $) 0.01 1000 400 0.02 950 450 0.03 900 500 0.04 850 550 0.05 800 600 0.06 750 650 0.07 700 700 0.08 650 750 0.09 600 800 0.10 550 850 0.11 500 900 0.12 450 950 0.13 400 1000 0.14 350 1050 0.15 300 1100 Instructions: Using excel, find the equilibrium real interest rate and quantity of loanable fund. show the equilibrium on a graph. If this country experiences a recession business cycle phase that decreases the demand for loanable fund by $200 billion. Find the new equilibrium real interest rate and quantity of loanable fund. Show the shift on the graph. list Two factors that shift SLF rightward and two factors that shift DLF rightward What is the meaning of crowding out?…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_forwardScenario 3: Unemployment decreases throughout the country causing a dramatic increase in income for millions of Americans. Causing Americans to save more. 1. What is the likely effect of this increase in income on the supply of loanable funds? 2. What effect will this change have on the interest rate? 3. How will this change the behavior of consumers?arrow_forward
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