All Flashcards
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 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.