Question

1) explain five (5) factors that cause the supply curve of loanable funds to shift

2) discuss four (4) factors that can cause a change in the demand curve of a bond and show how these charges affect the curve

Answer 1

Answer:-

The five factors that cause the supply curve of loanable funds to shift are

1) Increase in national income which increases the private savings. and national savings. This causes the supply curve of loanable funds to shift right.
2)Decrease in national income will decrease the private savings and national savings. In this case the supply curve of loanable funds shifts to left.
3) Increase in government budget surplus or decrease in government budget deficit will increase the public savings and
national savings which causes the supply curve of loanable funds to shift right.
4) Increase in government budget deficit or decrease the government budget surplus will decrease the public savings.
and the national savings and the supply curve of loanable funds shifts left.
5) Increase in the desire to save will increase the private savings and national savings and the supply curve of loanable funds shifts towards right.
6) The decrease in the desire to save will decrease the private savings and national savings and will cause the supply curve of loanable funds to shift left.

The four factors that can cause a change in the demand curve of a bond and the affect on the curve are as follows:-

1)The increase in expected inflation will cause the demand to decrease and the curve shifts to left.
2) Increase in expected rate on return will cause demand to increase and will cause the curve to shift right
3) The increase in wealth will  cause the demand to increase and the demand curve shifts to right.
4) Increase in expected returns on other assets will increase the demand and will cause the demand to shift right.
5)Increase in risk of bonds relative to other assets will causes demand to decrease and the demand curve will shift left.
6) Increase in liquidity of bonds relative to other assets will causes demand to increase and the demand curve shifts to right.