true/false explain 4. When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending.
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true/false explain
4. When nominal interest rates are zero, the central bank can still lower them by printing money and purchasing bonds from banks. This increases the supply of loanable funds and stimulates lending.
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- Suppose the government borrows $20 million more next year than this year. What happens to investment? To private savings? To public savings? To national savings? How does the elasticity of the supply of loanable funds affect the size of these changes? How does the elasticity of the demand of loanable funds affect the size of these changes?Chairman Latrobe, the Supreme Leader of Rolling Rock decided to increase the personal tax rate to fund the defense force. 8) How may this affect the loanable funds market? Explain by describing the change in the demand for, or the supply of, loanable funds. 9) Because of the change decreed by President Thug and your answer to question 8, what is likely to happen to the interest rate and the quantity of funds in the loanable funds market? 10) How will each of these Rolling Rockers feel about President Thug’s decision? (A) Investor Confidence (B) The President of Rolling Rock National BankRecently, the economies of China and India have begun to grow very rapidly. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. a. When foreign savings enter the U.s. loanable funds market, which curve is affected—supply or demand? How is this curve affected? b. How would you graph the U.s. loanable funds market both before and after the increase in foreign savings? c. How does the change in foreign savings affect both investment and future output in the United states?
- b. 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) The U.S. Federal Reserve engages in an open market expansion policy to increase the money supply to speed up the economy. (2) The U.S. government has a larger demand for funds to fund a large deficit, so will be seeking to borrow loanable funds by issuing a large amount of new government bonds to sell to the public. (3) There is an expansion, and businesses are expanding and increasing their plans to take on new capital projects, increasing their demand for financing. (4) Wealth and liquidity rises in an economy, resulting in investors and savers more willing to invest/lend funds in an economy.Changes in the money supply affect the interest rate through changes in the supply of loans, real GDP, the price level, and the expected inflation rate. True or False: The price-level effect describes the change in the interest rate due to a change in the expected inflation rate. False INTEREST RATE True The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the expected inflation rate. Show the effect of this increase by dragging one or both curves on the graph. SLE QUANTITY OF LOANABLE FUNDS The income effect DLF The liquidity effect The expectations effect PLF SLF Which of the following refer to changes that affect the demand for loanable funds but not the supply? Check all that apply. The price-level effect (?Classify each of the following in terms of their effect on interest rates (increase or decrease): I. Covenants on borrowing become more restrictive. II. The Federal Reserve increases the money supply. III. Total household wealth increases. Multiple Choice I increases; Il increases; I increases I increases; Il decreases; Ill decreases I decreases; Il increases; Il increases I decreases; Il decreases; III decreases うう うう9
- Using the loanable funds theory, illustrate the effect of the following on the level of interest rates.A. An increase in expected future income. B. An increase in income levels which would result in an increase in the level of savings.Imagine a scenario in which there is a decreased consumer confidence in domestic financial systems. As a result, consumers have increased their savings in foreign financial institutions. What is the likely result of the supply loanable funds market? A)The supply of loanable funds will increase B)The supply of loanable funds will decrease C) Demand for loanable funds will decreaseExplain how government borrowing affect interest rate in the market. What impact such change in interest rate could have on the economy?
- Scenario: Country X is currently in a contraction in the business cycle. After months of contractions the economy enters a recession resulting in people delaying large purchases of cars and homes. 1. How will this change in consumer behavior likely effect the demand for loanable funds? 2. How will this change in the demand for loanable funds likely effect the interest rate in the short-run? 3. How will this change in the interest rate likely change the behavior of consumers in the long-run? 4. How will this change in consumer behavior likely effect the business cycle in the long- run? Explain your reasoning.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. NOTE: the first dropdown question options are (fall or rise), the seconds are (decrease or increase), the thirds are (fall or rise), the fourths are (fall or rise), the fifths are (deficit or surplus), the sixths are (decreases or increases), the sevenths are (fall or rise), and the last ones is (crowding out ot increasing)The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) 14 INTEREST RATE (Percent) Demand Supply LOANABLE FUNDS (Billions of dollars) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 18%. Now suppose there is a decrease in the tax rate on interest income, from 18% to 14%. Shift the appropriate curve on the graph to reflect this change. Demand Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending…