ECON 104 Lecture Notes - Lecture 12: Opportunity Cost, Progressive Alliance Of Socialists And Democrats, Real Interest Rate

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19 Sep 2016

School

George Mason University

Department

Economics

Course

ECON 104

Professor

Rustici/ Gillespie

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Document Summary

The model below takes both gdp and the price level as given. Supply and demand for loanable funds and foreign currency. Recall, in chapter 8 loanable fund supply and demand. Slopes upward because a higher interest rate causes a higher opportunity cost of today"s consumption. Slopes downward because a higher interest rate means fewer investments are worthwhile. Open economy, so s = i + nco (b) (3) (a) (i) (ii) (b) (i) (ii) A dollar saved is either invested at home, or invested abroad. If us domestic savings are less than investment, nco will be negative (foreign inflows of capital will pay for us investment) c) I falls because fewer investments are worth it. Nco falls because domestic bonds pay more then quantity demanded of lf falls. (2) At the equilibrium interest rate, savings supplied will just equal the desired investment plus (3) desired nco: Foreign exchange market determines real exchange rates (price variable) and dollars.

Related Questions

Supply and demand for loanable funds

The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward sloping blue line represents the demand for loanable funds.

(Saving/Investment) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decreases/increases) .

Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (Greater/Less) than the quantity of loans demanded, resulting in a (Surplus/Shortage) of loanable funds. This would encourage lenders to (Raise/Lower) the interest rates they charge, thereby (Increasing/Decreasing) the quantity of loanable funds supplied and (Increase/Decrease) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ______%.

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QUESTION 11

If the demand for investment loans rises, this could be the result of

		the discovery of new and better roundabout methods of production.
		a lower rate of time preference in society.
		a lower interest rate.
		a higher interest rate.
		a and c

1 points

QUESTION 12

Which of the following statements is true?

		All persons have a high rate of time preference.
		People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference.
		People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference.
		A high interest rate is the cause of a high rate of time preference.
		none of the above

1 points

QUESTION 13

Which of the following statements is true?

		The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate.
		The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate.
		The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent.
		It is the nominal interest rate-not the real interest rate-that matters to borrowers.

1 points

QUESTION 14

If there is an increase in the expected inflation rate, then,

		the supply and demand for loanable funds will decrease.
		the supply and demand for loanable funds will increase.
		the supply of loanable funds will decrease, and the demand for loanable funds will increase.
		the supply of loanable funds will increase, and the demand for loanable funds will decrease.

1 points

QUESTION 15

If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then

		the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward.
		the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward.

The following graph shows the market for loanable funds in a closed economy. The upward-sloping line shows the supply of loanable funds and the downward sloping line shows the demand for loanable funds.

(Saving/Investment) is the source of the demand for loanable funds. As the interest rate falls, the quantity of loanable funds demanded (decreases/increases) .

as the interest rate falls, the quantity of loanable funds demanded

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ECON 104 Lecture Notes - Lecture 12: Opportunity Cost, Progressive Alliance Of Socialists And Democrats, Real Interest Rate

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