Question
In: Economics
Compare the interest rate used in the loanable funds model with the interest rate in the...
Compare the interest rate used in the loanable funds model with the interest rate in the money market model. Why are they different? & How does an increase in interest rates affect the Aggregate Expenditure model as well as the AD/AS model. Be sure to draw graphs to illustrate. For, AD/AS, you should show movement from long run equilibrium to long run equilibrium. Thank you!
Solutions
Rahul Sunny answered 2 years agoRelated Solutions
Using the model of loanable funds explain how the following changes affect the real interest rate,...
Using the model of loanable funds explain how the following
changes affect the real interest rate, investment, consumption, and
government expenditure. Include the appropriate diagram as part of
your answer. Initially assume that consumption depends only on
disposable income.
A)Expectations about the future profitability of investment
improve. (Hint: For a given real interest rate, r, firms will
invest a greater amount after expectations improve).
B) How does your answer to (A) change if consumption also
depends on the real interest...
The interest rate is the price of loanable funds in financial markets, and the equilibrium interest...
The interest rate is the price of loanable funds in financial
markets, and the equilibrium interest rate is the price that
equates the demand for and supply of loanable funds. Interest rates
may move from an existing equilibrium level to a new equilibrium
level as the result change in the supply of or demand for loanable
funds. For example, if the quantity of loanable funds being
demanded increases due to new business opportunities, suppliers of
loanable funds will need to...
Under the loanable funds theory, the equilibrium interest rate is determined by the interaction between the...
Under the loanable funds theory, the equilibrium interest rate
is determined by the interaction between the demand for and the
supply of funds from financial market participants, mainly the
household sector, the business sector and the government
sector.
Holding other factors constant, predict the change in domestic
interest rates that would occur when facing each of the following
situations. Explain your predictions in detail.
i The total wealth of local financial market participants
increases.
ii The default risk of loans...
Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is
4. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. _______ is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied _______ Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied...
As the real interest rate falls: the supply of loanable funds decreases. more saving is supplied...
As the real interest rate falls:
the supply of loanable funds decreases.
more saving is supplied to the market.
the quantity supplied of loanable funds decreases.
the supply of loanable funds increases.
Which of these is NOT a way financial institutions reduce
risk?
diversifying funds
collecting information helpful for risk assessment
performing credit checks on borrowers
guaranteeing a high rate of return for all lenders
Explain why the loanable funds market will return to an equilibrium interest rate when the actual...
Explain why the loanable funds market will return to an
equilibrium interest rate when the actual interest rate is below
the equilibrium interest rate.
Show a loanable funds graph with a negative equilibrium interest rate. What kind of surplus or...
Show a loanable funds graph with a negative equilibrium interest
rate. What kind of surplus or shortage exists if the ZLB binds?
Show a loanable funds graph with a negative equilibrium interest rate. What kind of surplus or...
Show a loanable funds graph with a negative equilibrium interest
rate. What kind of surplus or shortage exists if the ZLB binds?
Compare and contrast the Bond Market and the Market for Loanable Funds
Compare and contrast the Bond Market and the Market for Loanable
Funds
Use the loanable funds market, explain what happens to the equilibrium interest rate and equilibrium quantity...
Use
the loanable funds market, explain what happens to the equilibrium
interest rate and equilibrium quantity of loanable funds when:
a, Households are optimistic about future economic condition
and want to save less.
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