All Flashcards
How does increased government borrowing impact the real interest rate?
Increased government borrowing increases the demand for loanable funds, leading to a higher real interest rate.
How does increased savings affect the supply of loanable funds?
Increased savings increases the supply of loanable funds, leading to a lower real interest rate.
How do expectations of future economic growth affect the demand for loanable funds?
Positive economic outlook increases the demand for loanable funds as businesses invest and expand.
How do expectations of high inflation affect the supply of loanable funds?
High inflation expectations decrease the supply of loanable funds as lenders seek higher returns to compensate for inflation.
How does a decrease in the discount rate affect the supply of loanable funds?
A decrease in the discount rate increases the supply of loanable funds as banks borrow more from the central bank.
How does increased foreign investment in a country affect its loanable funds market?
Increased foreign investment increases the supply of loanable funds, lowering the real interest rate.
How does a decrease in consumer confidence impact the demand for loanable funds?
Decreased consumer confidence decreases the demand for loanable funds as households postpone large purchases.
How does a government surplus affect the loanable funds market?
A government surplus decreases the demand for loanable funds, potentially lowering real interest rates.
How does increased lending activity impact the demand for loanable funds?
Increased lending activity increases the demand for loanable funds, potentially raising real interest rates.
If a country experiences capital flight, what happens to its supply of loanable funds?
Capital flight decreases the supply of loanable funds, leading to higher real interest rates.
How does government deficit spending affect the real interest rate?
Increases demand for loanable funds, leading to a higher real interest rate (crowding out effect).
What is the effect of a central bank lowering the discount rate?
Increases the supply of loanable funds, leading to a lower real interest rate.
How does a tax incentive for savings affect the loanable funds market?
Increases the supply of loanable funds, leading to a lower real interest rate.
What is the impact of increased government investment on the demand for loanable funds?
Increases the demand for loanable funds, leading to a higher real interest rate.
How does a change in government regulation that encourages lending affect the loanable funds market?
Likely increases the supply of loanable funds, potentially lowering the real interest rate.
What is the effect of contractionary fiscal policy on the demand for loanable funds?
Decreases the demand for loanable funds, leading to a lower real interest rate.
How does a government policy aimed at increasing foreign investment affect the supply of loanable funds?
Increases the supply of loanable funds, potentially lowering the real interest rate.
What is the impact of a balanced budget amendment on the loanable funds market?
Reduces government borrowing, decreasing the demand for loanable funds and potentially lowering real interest rates.
How does a government subsidy for private investment affect the demand for loanable funds?
Increases the demand for loanable funds, potentially raising real interest rates.
What is the effect of a policy that reduces consumer confidence on the loanable funds market?
Decreases the demand for loanable funds, potentially lowering real interest rates.
What does a rightward shift in the demand curve for loanable funds indicate?
An increase in the demand for loanable funds, leading to a higher real interest rate.
What does a leftward shift in the supply curve for loanable funds indicate?
A decrease in the supply of loanable funds, leading to a higher real interest rate.
On a loanable funds market graph, what is on the x-axis and y-axis?
X-axis: Quantity of Loanable Funds; Y-axis: Real Interest Rate.
How does an increase in savings appear on the loanable funds market graph?
As a rightward shift of the supply curve, leading to a lower equilibrium interest rate.
How does increased government borrowing appear on the loanable funds market graph?
As a rightward shift of the demand curve, leading to a higher equilibrium interest rate.
What happens to the equilibrium point when both supply and demand increase?
The quantity of loanable funds increases, but the impact on the real interest rate is indeterminate without knowing the magnitude of the shifts.
If the demand curve shifts left, what happens to the equilibrium interest rate?
The equilibrium interest rate decreases.
If the supply curve shifts right, what happens to the equilibrium quantity of loanable funds?
The equilibrium quantity of loanable funds increases.
On the graph, what does the intersection of the supply and demand curves represent?
The equilibrium real interest rate and the equilibrium quantity of loanable funds.
How would you graphically represent the effect of capital flight on the loanable funds market?
A leftward shift of the supply curve.