Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781337091985
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 8, Problem 5CQQ
To determine
The effect of optimistic future expectations on the loanable fund market.
Expert Solution & Answer
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Which of the following reasons could cause the demand curve for loanable funds to shift to the right
from DLF to D¹LF in the figure?
Wage
$11
8
X
3400
2700
D
4500 Quantity
of labor
The economy is expected to boom, thereby increasing investment returns.
O Larger investment projects with potentially higher returns get funded.
Falling interest rates make it less expensive for firms to borrow.
Rising interest rates make it more attractive for savers to save.
What is the effect of a fall in the real interest rate on the demand for loanable funds?
A fall in the real interest rate _______.
A.
decreases the demand for loanable funds and shifts the demand curve leftward
B.
decreases the quantity of loanable funds demanded up along the demand curve
C.
increases the demand for loanable funds and shifts the demand curve rightward
D.
increases the quantity of loanable funds demanded down along the demand curve
Thanks!
What is the effect of a fall in the real interest rate on the demand for loanable funds?
A fall in the real interest rate _______.
A.
increases the quantity of loanable funds demanded down along the demand curve
B.
decreases the quantity of loanable funds demanded up along the demand curve
C.
decreases the demand for loanable funds and shifts the demand curve leftward
D.
increases the demand for loanable funds and shifts the demand curve rightward
Chapter 8 Solutions
Brief Principles of Macroeconomics (MindTap Course List)
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Similar questions
- If a popular TV show on personal finance convincesAmericans to save more for retirement, the_________ curve for loanable funds would shift,driving the equilibrium interest rate _________.a. supply; upb. supply; downc. demand; upd. demand; downarrow_forwardChairman 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 Bankarrow_forwardGraph Interest Rate Figure 2 Saving Incentives Increase the Supply of Loanable Funds A change in the tax laws to encourage Americans to save more would shift the supply of loanable funds to the right from S₁ to S₂. As a result, the equilibrium interest rate would fall, and the lower interest rate would stimulate investment. Here the equilibrium interest rate falls from 5 percent to 4 percent, and the equilibrium quantity of loanable funds saved and invested rises from $1,200 billion to $1, 600 billion. 5% 4% 2.... which reduces the equilibrium interest rate... See graph built step by step 0 $1,200 Supply, S₁ $1,600 3.... and raises the equilibrium quantity of loanable funds. 5₂ 1. Tax incentives for saving increase the supply of loanable funds... Demand Build graph yourself Loanable Funds (in billions of dollars)arrow_forward
- If the business community becomes more optimisticabout the profitability of capital, the _________curve for loanable funds would shift, driving theequilibrium interest rate _________.a. supply; upb. supply; downc. demand; upd. demand; downarrow_forwardMacroeconomics referred to picture of Graph to answer questions fill in the blanks The Market for Loanable Funds II. Other things being equal, a decrease in taxes on savings and investment income will shift____ to the ____and_____interest rate. a. supply; right; decrease b. demand; right; increase (incorrect answer) c. demand; left; decrease d. supply; left; increasearrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase.arrow_forward
- Recently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase. Clear my choicearrow_forwardMost Australians are found to be frugal during the coronavirus pandemic and have started saving more. Explain how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.arrow_forward
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