Question
In: Finance
What is the loanable funds theory? For example, how is each participants consumption impacted given the...
What is the loanable funds theory? For example, how is each participants consumption impacted given the loanable funds theory?
Solutions
Expert Solution
Loanable funds includes all forms of credit, such as loans, bonds, and savings deposits. Loanable funds theory is a theory of the market interest rate. According to this theory, the interest rate is determined by the demand for and supply of loanable funds.
Deficits can impact the participant's consumption and cause shift in demands in two ways-
Deficits increase the demand for loanable funds; surpluses decrease the demand for loanable funds.
If the government runs a deficit, it has to borrow money. So, if there is a deficit, the demand for loanable funds will increase because the government gets in line to borrow money just like all of the other borrowers.
Deficits decrease the supply of loanable funds; surpluses increase the supply of loanable funds.
National savings includes public savings and national savings is the source of the supply of loanable funds. So anything that makes Public savings smaller (like a deficit) or bigger (like a surplus) will shift the supply of loanable funds
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jeff jeffy answered 2 years agoRelated Solutions
Using the loanable funds theory and the demand and supply of loanable funds, explain what will...
Using the loanable funds theory and the demand and supply of
loanable funds, explain what will happen to the real interest rate
in an economy if a recession occurs, such as occurred with the
Covid19 pandemic.
Using the loanable funds theory, show in a graph how each of the following events affects...
Using the loanable funds theory, show in a graph how each
of the following events affects the supply and demand for loans and
the
equilibrium real interest rate:
a). A war leads the government to increase spending on the
military.
(Assume taxes do not change.). Please note, to get full points, you
need to
illustrate (on the proper, well-labeled graph) and explain.
b). Wars in other countries lead to higher government spending
in
those countries. Please note, to get full...
Using the loanable funds theory, show in a graph how each of the following events affects...
Using the loanable funds theory, show in a graph how
each
of the following events affects the supply and demand for loans and
the
equilibrium real interest rate:
a). (0.5 points): A war leads the government to increase spending
on the military.
(Assume taxes do not change.). Please note, to get full points, you
need to
illustrate (on the proper, well-labeled graph) and explain.
b). (0.5 points): Wars in other countries lead to
higher government spending in
those countries. Please...
Based on the loanable funds theory, explain how each of the following changes should impact interest...
Based on the loanable funds theory, explain how each of the
following changes should impact interest rates (increase or
decrease):
Covenants on borrowing become more restrictive.
The Federal Reserve increases the money supply.
Total household wealth increases.
What is the impact on the loanable funds market if the quantity of loanable funds supplied...
What is the impact on the loanable funds market if the quantity
of loanable funds supplied is less than the quantity demanded?
The following graph shows the market for loanable funds. For each of the given scenarios, adjust...
The following graph shows the market for loanable funds. For
each of the given scenarios, adjust the appropriate curve on the
graph to help you complete the questions that follow. Treat each
scenario separately by resetting the graph to its original state
before examining the effect of each individual scenario. (Note: You
will not be graded on any changes you make to the graph.)
Created with Raphaël 2.1.2DemandSupplyINTEREST RATE
(Percent)LOANABLE FUNDS (Billions of
dollars)Demand Supply
Created with Raphaël 2.1.2
Scenario 1:...
Using the loanable Funds theory, show in a graph how the following event affects the supply...
Using the loanable Funds theory, show in a
graph how the following event affects the supply and demand for
loans and the equilibrium real interest rate. Explain in words as
well:
There is a sudden increase in confidence of the economy from
abroad, and the country receives sudden large capital
inflows.
For each of the following separate scenarios, determine how the supply/demand for loanable funds in the...
For each of the following separate scenarios, determine how the
supply/demand for loanable funds in the US shifts.
The economy is growing and household income increases.
Government delays the retirement age.
Online shopping makes it easier for customers to consume.
Companies are more pessimistic during recessions.
For each of the following separate scenarios, determine how the supply/demand for loanable funds in the...
For each of the following separate scenarios, determine how the
supply/demand for loanable funds in the US shifts.
The economy is growing and household income increases.
Government delays the retirement age.
Online shopping makes it easier for customers to consume.
Companies are more pessimistic during recessions.
For each of the following separate scenarios, determine how the supply/demand for loanable funds in the...
For each of the following separate scenarios, determine how the
supply/demand for loanable funds in the US shifts.
The economy is growing and household income increases.
Government delays the retirement age.
Online shopping makes it easier for customers to consume.
Companies are more pessimistic during recessions.
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