Question 1

Suppose the government changed the tax laws,with the result that people were encouraged to consume more and save less.Using the loanable funds model,a consequence would be

Accepted Answer

When people consume more and save less, the supply of loanable funds decreases, leading to higher interest rates and lower investment.

Question 2

The source of the supply of loanable funds is

Accepted Answer

The source of the supply of loanable funds is saving, as individuals, businesses and governments save a portion of their income instead of consuming it immediately. The source of the demand for loanable funds is investment, as businesses and governments borrow funds to finance new projects, research and development, etc. The interest rate is a factor that affects both the supply and demand for loanable funds, but is not the source of either.

Question 3

Figure 26-1.The figure depicts a demand-for-loanable-funds curve and two
supply-of-loanable-funds curves. 
-Refer to Figure 26-1.What is measured along the vertical axis of the graph?

Accepted Answer

The answer of Figure 26-1.The figure depicts a demand-for-loanable-funds curve...

Question 4

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the demand curve from D₁ to D₂ is called

Accepted Answer

A shift of the demand curve to the right (from D₁ to D₂) indicates an increase in the demand for loanable funds, which would originate from households and firms who wish to borrow to make investments.

Question 5

According to the loanable funds model,which of the following events would result in higher interest rates and greater saving?

Accepted Answer

The answer of According to the loanable funds model,which of...

Question 6

Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two
demand-for-loanable-funds curves. 
-Refer to Figure 26-2.What is measured along the horizontal axis of the graph?

Accepted Answer

The answer of Figure 26-2.The figure depicts a supply-of-loanable-funds curve...

Question 7

Figure 26-1.The figure depicts a demand-for-loanable-funds curve and two
supply-of-loanable-funds curves. 
-Refer to Figure 26-1.Which of the following events would shift the supply curve from S1 to S2?

Accepted Answer

The supply curve shifts based on changes in saving behavior, so option B would be the correct choice. Option A would shift the demand curve, while option C would shift the demand and/or supply curve for loanable funds depending on other factors such as the crowding out effect.

Question 8

Which of the following is correct?

Accepted Answer

The answer of Which of the following is correct?
...

Question 9

Which of the following is included in the demand for loanable funds?

Accepted Answer

The answer of Which of the following is included in...

Question 10

A policy that induces people to save more shifts

Accepted Answer

The answer of A policy that induces people to save...

Question 11

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3.What,specifically,does the label on the vertical axis,i,represent?

Accepted Answer

The answer of Figure 26-3.The figure shows two demand-for-loanable-funds curves...

Question 12

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3.Which of the following movements shows the effects of a new law that makes more people than before eligible for Individual Retirement Accounts?

Accepted Answer

The new law that makes more people eligible for Individual Retirement Accounts would increase the supply of loanable funds, causing the supply curve to shift from S1 to S2. This would lead to a decrease in the equilibrium interest rate from r1 to r2, and an increase in the equilibrium quantity of loanable funds from Q1 to Q2. This movement is shown by a movement from Point C to Point F.

Question 13

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the supply curve from S₁ to S₂ is called

Accepted Answer

The answer of Figure 26-3.The figure shows two demand-for-loanable-funds curves...

Question 14

If the government instituted an investment tax credit,then which of the following would be higher in equilibrium?

Accepted Answer

An investment tax credit would incentivize firms to invest more, increasing the demand for loanable funds and therefore driving up the interest rate. At the same time, the tax credit would increase the return on investment, encouraging households to save more in order to take advantage of this higher return. Therefore, both saving and the interest rate would be higher in equilibrium.

Question 15

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. 
-Refer to Figure 26-3.Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus?

Accepted Answer

If the government goes from a budget deficit to a budget surplus, it means that it is spending less than it is taking in. This reduces its demand for loanable funds, which would shift the demand-for-loanable-funds curve to the left, from DLF1 to DLF2. At the same time, the government is no longer issuing as many bonds to finance its deficit, so the supply of loanable funds shifts to the right, from SLF1 to SLF2. The result is a movement from Point B to Point A, where the equilibrium interest rate falls and the equilibrium quantity of loanable funds decreases.

Question 16

Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two
demand-for-loanable-funds curves. 
-Refer to Figure 26-2.Which of the following events would shift the demand curve from D1 to D2?

Accepted Answer

A shift in the demand curve for loanable funds occurs due to a change in investment demand. Option A, a government budget deficit/surplus, affects the supply of loanable funds, not the demand. Option C, a tax law change that increases saving, would increase the supply of loanable funds, not the demand. Option D, a tax law change that encourages consumption and reduces saving, would decrease the supply of loanable funds, not the demand. Only option B describes a change in investment demand that would shift the demand curve for loanable funds from D1 to D2.

Question 17

Which of the following counts as part of the supply of loanable funds?

Accepted Answer

Both bank deposits and purchases of bonds contribute to the supply of loanable funds. Bank deposits can be used to make loans or purchase bonds, while purchases of bonds directly increase the available funds for lending.

Question 18

Which of the following are effects of an increased budget deficit?

Accepted Answer

The answer of Which of the following are effects of...

Question 19

If the budget deficit increases then

Accepted Answer

When the budget deficit increases, the government needs to borrow more. This increases the demand for loanable funds, which in turn pushes up the interest rate. As the interest rate rises, saving falls as individuals and businesses are less likely to save money when the interest rate is high. Therefore, the correct choice is C, as saving falls and the interest rate rises.

Question 20

In the market for loanable funds,the interaction of the demand for,and supply of,loanable funds determines the equilibrium level of

Accepted Answer

The demand for and supply of loanable funds determines the equilibrium level of the real interest rate, which represents the cost of borrowing or the return on saving. The inflation rate and gross domestic product are not directly related to the loanable funds market, while the nominal interest rate is influenced by the real interest rate and the expected inflation rate.

Quiz 26: Saving, investment, and the Financial System

Suppose the government changed the tax laws,with the result that people were encouraged to consume more and save less.Using the loanable funds model,a consequence would be

The source of the supply of loanable funds is

Figure 26-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1.What is measured along the vertical axis of the graph?

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the demand curve from D1 to D2 is called

According to the loanable funds model,which of the following events would result in higher interest rates and greater saving?

Figure 26-2.The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. -Refer to Figure 26-2.What is measured along the horizontal axis of the graph?

Figure 26-1.The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. -Refer to Figure 26-1.Which of the following events would shift the supply curve from S1 to S2?

Which of the following is correct?

Which of the following is included in the demand for loanable funds?

A policy that induces people to save more shifts

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.What,specifically,does the label on the vertical axis,i,represent?

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.Which of the following movements shows the effects of a new law that makes more people than before eligible for Individual Retirement Accounts?

Figure 26-3.The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. -Refer to Figure 26-3.A shift of the supply curve from S1 to S2 is called