Question

Show a loanable funds graph with a negative equilibrium interest rate. What kind of surplus or shortage exists if the ZLB binds?

Answer 1

The interest rate is determined in the market for loadable funds. The demand curve for loadable funds has a negative slope. The supply curve has a positive slope. Changes in the demand for capital affect the loadable funds market, and changes in the loadable funds market affect the quantity of capital demanded. interest is the price paid for the use of money borrowers exchange the ability to purchase today in exchange for purchasing in the future some of the money the receive in future will be used to repay the loan. Interest is stated as a percentage of the amount borrowed, simplifying the comparison of different borrowing opportunity.Although there are many different interest rates, economists talk about interest rates as if they ate 1,because interest rate tend to move together, which can generally be referred to as the market rates are generally positive because.saving is a source of loadable fund and investment is the demand for loadable funds. The market where who have loadable funds sell to those who want this funds. The zero lower bonds or zero nominal lower bounds is a macroeconomics problem that occurs when the short term nominal interest rate is at or near zero causing a liquidity trap and limiting the capacity that the Central Bank has to stimulate economic growth.the root cause of the zlb is the issuance of paper currency by govt.effectively guarantees a zero nominal interest rate and acting as an interest rate floor. The problem of Zero returned to prominence with Japan experience during the 90.before 2008 most economists viewed this zero lower bonds on short term interest rate as unlikely to be relevant very often and thus not a serious constraint on monetary policy. The second factor determined the frequency and severity of zlb.