Changes in the money supply affect the interest rate through changes in the supply of loans, Real GDP, the price level, and the expected inflation rate. True or False: The expectations effect describes a change in the interest rate due to a change in the price level. INTEREST RATE True False The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the price level. INTEREST RATE Adjust the following graph to show the effect of this increase in the price level. The income effect QUANTITY OF LOANABLE FUNDS The price-level effect a. The liquidity effect PU The expectations effect RU 10 DE 19 SLF Which of the following refer to changes that affect both supply and demand in the loanable funds market? Check all that apply. (?) DLF SUF

Changes in the money supply affect the interest rate through changes in the supply of loans, Real GDP, the price level, and the expected inflation rate. True or False: The expectations effect describes a change in the interest rate due to a change in the price level. INTEREST RATE True False The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the price level. INTEREST RATE Adjust the following graph to show the effect of this increase in the price level. The income effect QUANTITY OF LOANABLE FUNDS The price-level effect a. The liquidity effect PU The expectations effect RU 10 DE 19 SLF Which of the following refer to changes that affect both supply and demand in the loanable funds market? Check all that apply. (?) DLF SUF

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter15: Monetary Policy

Section: Chapter Questions

Problem 12QP

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The economy of Dream Island, which is isolated from the rest of the world, has the supply of loanable funds schedule and the demand for loanable funds schedule shown in the table below. As it happens, all of the supplies of loanable funds are from households' savings and the entre demand for loanable funds is from firms' investment demand. Real interest rate (percent per year) Supply of loanable funds (2005 dollars) Demand for loanable funds (2005 dollars) 5 2,000 5,000 7 3,000 4,000 9 4,000 3,000 11 5,000 2,000 a) Draw the demand and supply curves.
Use the graph to answer the question that follows. Quantity of Loanable Funds (S) Assume that the loanable funds market is in equilibrium, as shown in the graph.If households become concerned about retirement income and spend less,what will happen in this market for loanable funds? O The demand for funds will increase, as will the equilibrium interest rate. O Both the demand for funds and the supply of funds will decrease, with an indeterminate impact on the equilibrium interest rate. ) The demand for funds will decrease, and the equilibrium quantity of funds transacted will erease below Fo. O Both the demand for funds and the supply of funds will icrease, with an increase in the quantity of funds transacted. O The supply of funds will increase, and the equilibrium interest rate wi fall blow ro. Real Interest Rate
Macmillan Learning U The graph depicts the market for loanable funds. Shift the appropriate curves to indicate what will happen to the market if there is an improvement in the technology firms use in production. As a result of this change, the real interest rate is now % Real interest rate 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 and the quantity of funds is $ billion. 0.5 Supply Demand 0.0 0 5 10 15 20 25 30 35 40 45 50 Loanable funds (in billions)
Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds. What are the new equilibrium real interest rate and the quantity of loanable funds? 5.0 4.5 4.0 3.5 3.0 Supply Real interest rate: Interest rate 2.5 2.0 1.5 1.0 0.5 0.0 0 20 40 40 % Loanable funds: $ Demand 60 80 100 120 Loanable funds (millions) 140 160 180 200 million