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What is the difference between the nominal interest rate and the real interest rate?
Nominal interest rate is the stated rate; real interest rate is adjusted for inflation.
Compare the effects of increased savings versus increased government borrowing on the real interest rate.
Increased savings decreases the real interest rate; increased government borrowing increases it.
What is the difference between factors that shift the demand curve versus the supply curve?
Demand shifters (BIG DEE) affect borrowing; supply shifters (FELS) affect lending/saving.
Compare the impact of positive vs. negative economic expectations on the loanable funds market.
Positive expectations increase demand; negative expectations increase supply (as people save more).
What is the difference between the loanable funds market and the money market?
The loanable funds market deals with long-term interest rates, while the money market deals with short-term interest rates.
Compare the effects of a government surplus versus a government deficit on the demand for loanable funds.
A government surplus decreases the demand, while a government deficit increases the demand.
What is the difference between the impact of domestic savings and foreign investment on the supply of loanable funds?
Both increase the supply, but foreign investment can be more volatile and subject to capital flight.
Compare the effects of an increase in the discount rate versus an increase in the reserve requirement on the supply of loanable funds.
An increase in the discount rate decreases the supply, while an increase in the reserve requirement also decreases the supply.
What is the difference between the effects of inflation expectations on borrowers versus lenders?
Borrowers benefit from inflation, as they repay debts with cheaper money; lenders are harmed, as the real value of their returns decreases.
Compare the effects of expansionary monetary policy versus expansionary fiscal policy on the loanable funds market.
Expansionary monetary policy increases the supply of loanable funds, while expansionary fiscal policy increases the demand for loanable funds.
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.
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.