Question 1

If there is a shortage of loanable funds,then

Accepted Answer

In a shortage of loanable funds, the quantity demanded exceeds the quantity supplied at the current interest rate, leading to an increase in the real interest rate to restore equilibrium without shifting the curves.

Question 2

If at a given real interest rate desired national saving is $200 billion,domestic investment is $100 billion,and net capital outflow is $80 billion,then at that real interest rate in the loanable funds market there is a

Accepted Answer

At a given real interest rate, desired national saving exceeds domestic investment, resulting in a surplus of funds in the loanable funds market. Net capital outflow represents the amount of domestic capital being invested abroad, which further adds to the surplus of funds. The surplus puts downward pressure on the real interest rate, causing it to fall until demand for funds increases and the market reaches equilibrium. So, the correct answer is (B) surplus, and the real interest rate will fall.

Question 3

If the supply of loanable funds shifts right,then

Accepted Answer

When the supply of loanable funds shifts right, it means that there are more funds available for lending at any given interest rate. This leads to an increase in the quantity of loanable funds demanded by borrowers, resulting in a rightward shift of the demand curve. The equilibrium real interest rate falls as a result, as the increase in supply drives down the cost of borrowing. Additionally, the equilibrium quantity of loanable funds rises, as more funds are supplied and demanded in the market. Therefore, the correct choice is B, where the real interest rate falls and the equilibrium quantity of loanable funds rises.

Question 4

If at a given real interest rate desired national saving is $60 billion,domestic investment is $30 billion,and net capital outflow is $20 billion,then at that real interest rate in the loanable funds market there is a

Accepted Answer

At the given real interest rate, the total supply of loanable funds (desired national saving) is $60 billion, while the total demand (domestic investment plus net capital outflow) is $50 billion ($30 billion + $20 billion). This results in a surplus of $10 billion in the loanable funds market, causing the real interest rate to fall.

Question 5

If the supply of loanable funds shifts left,then

Accepted Answer

If the supply of loanable funds shifts left, it means that there are less funds available for lending. This will cause an increase in the demand for loanable funds, leading to an increase in the real interest rate. At the same time, the equilibrium quantity of loanable funds will decrease as lenders are willing to lend less at the higher interest rate. Therefore, the best choice is D, where the real interest rate rises and the equilibrium quantity of loanable funds falls.

Question 6

If the demand for loanable funds shifts right,then

Accepted Answer

When the demand for loanable funds shifts right, it indicates an increase in demand, leading to a higher real interest rate and a higher equilibrium quantity of loanable funds.

Question 7

If the quantity of loanable funds supplied is less than the quantity demanded,then there is a

Accepted Answer

When the quantity of loanable funds supplied is less than the quantity demanded, there is more demand for loans than there are funds available, leading to a shortage. This shortage will result in an increase in the interest rate as lenders try to attract more funds from savers. Therefore, choice B is the best answer.

Question 8

If there is a surplus in the market for loanable funds,the resulting change in the real interest rate

Accepted Answer

A surplus in the market for loanable funds means that the supply of funds exceeds the demand at the current interest rate. To eliminate the surplus, the real interest rate will decrease, which will reduce the quantity of loanable funds supplied and increase the quantity of loanable funds demanded.

Question 9

If at a given real interest rate desired national saving is $140 billion,domestic investment is $90 billion,and net capital outflow is $60 billion,then at that real interest rate in the loanable funds market there is a

Accepted Answer

The answer of If at a given real interest rate...

Question 10

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds decrease?

Accepted Answer

The answer of Which of the following would make both...

Question 11

If the quantity of loanable funds supplied is greater than the quantity demanded,then there is a

Accepted Answer

A surplus of loanable funds means there is more money available for lending than there are borrowers demanding it. This leads to increased competition among lenders to attract borrowers, which drives down the interest rate. Therefore, with a surplus of loanable funds, the interest rate will fall.

Question 12

If there is a surplus in the U.S.loanable funds market,then

Accepted Answer

A surplus in the loanable funds market means that savings (S) exceed the sum of net capital outflow (NCO) and investment (I), hence NCO + I < S.

Question 13

If there is a surplus in the market for loanable funds,then the interest rate

Accepted Answer

The answer of If there is a surplus in the...

Question 14

If the supply of loanable funds curve shifts right,then the equilibrium

Accepted Answer

When the supply of loanable funds increases, it shifts the curve to the right, leading to a lower equilibrium interest rate. Lower interest rates make domestic assets less attractive, increasing net capital outflows.

Question 15

If the supply of loanable funds shifts right,then the equilibrium

Accepted Answer

An increase in the supply of loanable funds will cause a decrease in the interest rate. As a result of this decrease in interest rate, domestic residents will have less incentive to keep their money in domestic banks and will want to purchase foreign assets where they can get a higher return. This means that they will buy more foreign assets, causing an increase in demand for foreign currency and a depreciation of the domestic currency.

Question 16

Which of the following would make both the equilibrium real interest rate and the equilibrium quantity of loanable funds increase?

Accepted Answer

When the demand for loanable funds shifts right, it indicates an increase in demand, leading to a higher equilibrium real interest rate and a higher equilibrium quantity of loanable funds.

Question 17

Which of the following would make the equilibrium real interest rate decrease and the equilibrium quantity of loanable funds increase?

Accepted Answer

When the supply of loanable funds shifts to the right, it means that there are more savings available in the market. This increases the supply of loanable funds and reduces the equilibrium real interest rate. Additionally, with a larger quantity of loanable funds available, the equilibrium quantity of loanable funds also increases.

Question 18

If there is a surplus of loanable funds,the quantity demanded is

Accepted Answer

When there is a surplus of loanable funds, it means that the quantity supplied (the amount of funds available for loans) exceeds the quantity demanded (the amount of loans borrowers want to take out) at the current interest rate. This surplus puts downward pressure on the interest rate, causing it to fall until equilibrium is reached.

Question 19

If the demand for loanable funds shifts left,then

Accepted Answer

When the demand for loanable funds shifts left, it indicates a decrease in demand. This leads to a lower real interest rate and a lower equilibrium quantity of loanable funds.

Question 20

If there is a surplus in the U.S.loanable funds market,then the interest rate

Accepted Answer

A surplus in the loanable funds market means there is more supply than demand, leading to a decrease in the interest rate, which in turn increases the quantity of loanable funds demanded.

Quiz 19: A Macroeconomic Theory of the Open Economy: Supply and Demand for Loanable Funds and for Foreign-Currency Exchange