All Flashcards
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.
What is the Loanable Funds Market?
The market where borrowers (demand) and savers (supply) interact to determine the real interest rate.
Define Real Interest Rate.
The price that balances the loanable funds market; nominal interest rate adjusted for inflation.
What is the equilibrium in the loanable funds market?
The point where the quantity of loanable funds demanded equals the quantity supplied.
Define Demand for Loanable Funds.
The total amount of borrowing that firms, households, and the government are willing to undertake at a given interest rate.
Define Supply of Loanable Funds.
The total amount of savings that individuals, firms, and the government are willing to lend at a given interest rate.
What is Deficit Spending?
When a government's expenditures exceed its revenues, leading to increased borrowing.
Define Discount Rate.
The interest rate at which commercial banks can borrow money directly from the central bank.
What is the Savings Rate?
The proportion of disposable income that households save rather than spend.
Define Foreign Purchases of Domestic Assets.
When foreign entities invest in a country's assets, increasing the supply of loanable funds.
What is Foreign Demand for Domestic Currency?
The desire by foreign entities to hold a country's currency, impacting the demand for loanable funds.
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.