ECON102 Lecture Notes - Lecture 7: Loanable Funds, Real Interest Rate, Disposable And Discretionary Income

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cerisegiraffe538

8 Oct 2015

School

University of Waterloo

Department

Economics

Course

ECON102

Professor

Joseph Dejuan

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ECON102 Full Course Notes

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Econ 102 lecture 7- financing, saving and investment cont"d. When the expected profit changes, the demand for loanable funds changes. Other things remaining the same, the greater the expected profit from new capital, the greater is the amount of investment and the greater the demand for loanable funds (shift in the curve) The quantity of loanable funds supplies is the total funds available from private saving, the government budget surplus, and international borrowing during a given period. The supply if loanable funds is the relationship between the quantity of loanable funds supplied and the real interest rate when all other influences on lending plans remaining the same. Saving is the main item that makes up the supply of loanable funds. A change in disposable income, expected future income, wealth, or default risk changes the supply of loanable funds (shift in the curve)

Related Questions

6. If there is a shortage of loanable funds, then

a.	the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is above equilibrium.
b.	the quantity of loanable funds demanded is greater than the quantity of loanable funds supplied and the interest rate is below equilibrium.
c.	the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is above equilibrium.
d.	the quantity of loanable funds supplied is greater than the quantity of loanable funds demanded and the interest rate is below equilibrium.

7. We associate the term debt finance with

a.	the bond market and we associate the term equity finance with the stock market.
b.	the stock market and we associate the term equity finance with the bond market.
c.	financial intermediaries and we associate the term equity finance with financial markets.
d.	financial markets and we associate the term equity finance with financial intermediaries.

8. If the demand for loanable funds shifts to the right, then the equilibrium interest rate

a.	and the quantity of loanable funds rises.
b.	and the quantity of loanable funds falls.
c.	rises and the quantity of loanable funds falls.
d.	falls and the quantity of loanable funds rises.

9. Long-term bonds are

a.	riskier than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
b.	riskier than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.
c.	less risky than short-term bonds, and so interest rates on long-term bonds are usually lower than interest rates on short-term bonds.
d.	less risky than short-term bonds, and so interest rates on long-term bonds are usually higher than interest rates on short-term bonds.

10. Compared to bondholders, stockholders

a.	face higher risk and have the potential for higher returns.
b.	face higher risk but receive a fixed payment.
c.	face lower risk and have the potential for higher returns.
d.	face lower risk but receive a fixed payment.

11. The old adage, 'don't put all your eggs in one basket', is very similar to a modern bit of advice concerning financial matters:

a.	Buy low-risk bonds.
b.	Use a medium of exchange.
c.	Diversify.
d.	Intermediate.

12. A budget surplus is created if

a.	the government sells more bonds than it buys back.
b.	the government spends more than it receives in tax revenue.
c.	private saving is greater than zero.
d.	None of the above is correct.

greenwildebeest673

Hi !! i was studying for final exam for eco Few more question i don't really get
Q6) When each firm is producing its capacity and there is full employment, this shows:

1. An inflationary gap

2. all of the above

3. a deflationary gap

4. the long run AS curve

Q7) According to the RBA, the rate of unemployment is beginning to edge higher. Which of the following causes of unemployment is not associated with an excess supply of labour?

1. Efficiency wages
2. Job Search

3. Minimum wage laws
4. Unions

Q8) According to the RBA, public spending is scheduled to be subdued. Public spending is

1. The amount of income that businesses have left after paying for the factors of production

2. the amount of tax revenue that the government has left after paying for its spending

3. the amount of income that households have left after paying their taxes and paying for their consumption

4. always equal to investment

Q9) The demand for loanable funds is downward-sloping because:
1. As the interest rate falls, the demand for loanable funds falls

2. As the interest rate rises, the quantity of loanable funds demanded rises

3. as the interest rate falls, the demand for loanable fund increases

4. as the interest rate rises the quantity of loanable funds demand falls.

Q10) Suppose that the government decides to issue an investment tax credit to encourage more investment spending. Then this:
1. Shifts the demand curve for loanable fund to the right

2. does not affect the interest rate

3. reduces the supply of loanable funds

4. lowers the interest rate

Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the student's investment projects:

Student	Return
Student	(Percent)
Yakov	4
Charles	7
Dina	15

Assume borrowing and lending are prohibited, so each student uses only personal savings to finance his or her own investment project.

Complete the following table with how much each student will have a year later when the project pays its return.

Student	Money a Year Later
Student	(Dollars)
Yakov	_________
Charles	_________
Dina	_________

Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate or.

If a studentâs expected rate of return is greater than r, he or she would choose to (lend, borrow).

Suppose the interest rate is 6 percent.

Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.

Now suppose the interest rate is 12 percent.

Among these three students, the quantity of loanable funds supplied would be $______, and quantity demanded would be $______.

At an interest rate of ______%, the loanable funds market among these three students would be in equilibrium. At this interest rate, (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) would want to borrow, and (Charles, Yakov, Yakov and Charles, Charles and Dina, Dina) want to lend.

Suppose the interest rate is at the equilibrium rate.

Complete the following table with how much each student will have a year later after the investment projects pay their return and loans have been repaid.

Student	Money a Year Later
Student	(Dollars)
Yakov	_________
Charles	_________
Dina	_________

True or False: Only borrowers are made better off, and lenders are made worse off.

cyansheep662

ECON102 Lecture Notes - Lecture 7: Loanable Funds, Real Interest Rate, Disposable And Discretionary Income

ECON102 Full Course Notes

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