Question
In: Economics
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 rate (i.e. is decreasing with r)?
Solutions
Rahul Sunny answered 1 year agoRelated Solutions
Using the loanable funds theory, explain what will happen to the real equilibrium interest rate under...
Using the loanable funds theory, explain what
will happen to the real equilibrium interest rate under the
following scenarios:
(In your discussion describe or show with a graph the change in
the supply curve for loanable funds and the change in its
intersection with the demand curve for loanable funds).
(1) There is a decrease in the money supply with the Federal
Reserve engaging
in a contraction policy.
(2) The U.S. government has a large deficit that its need to...
Using the loanable funds theory, explain what will happen to the real equilibrium interest rate under...
Using the loanable funds theory, explain what
will happen to the real equilibrium interest rate under the
following scenarios: (In your discussion describe or show
with a graph the change in the supply curve for loanable funds and
the change in its intersection with the demand curve for loanable
funds).
(1) There is a decrease in the money supply with the Federal
Reserve engaging in a contraction policy.
(2) The U.S. government has a large deficit that its need to...
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!
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.
when there is a shortage of loanable funds, the real interest will increase. explain the previous...
when there is a shortage of loanable funds, the real interest will
increase. explain the previous statement is corect pr not
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
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.
Factors that affect the demand for loanable funds also affect the supply of loanable funds Question...
Factors that affect the demand for loanable funds also affect
the supply of loanable funds Question 57 options:
true
false
Use the loanable funds market to graphically analyze what happens to real interest rate and investment...
Use the loanable funds market to graphically analyze what
happens to real interest rate and investment if government
increases its spending. Also explain what is the crowding out
effects
As a global manager, create a scenario for analysis using the three-sector model: Real Loanable Funds...
As a global manager, create a scenario for analysis using the
three-sector model: Real Loanable Funds Market, Real Goods Market,
and the Foreign Exchange Market for Question A. There is no “set”
answer here. You are the manager doing the analysis and setting up
the scenario. Use your own assumptions.
A. In the post-World War II period, the economies of Japan and
Germany were rebuilt, and both economies were able to achieve
economies of scale in the steel and automobile...
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