ECON 1BB3 Lecture Notes - Loanable Funds, Canadian Dollar, Demand Curve

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champagnewhale505

17 Apr 2014

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ECON 1BB3 Full Course Notes

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Savings is determined by the intersection of rw and supply curve. Investment is determined by the intersection of rw and demand curve. Nco = s i, which means the horizontal distance between and supply curve and demand curve at rw. Nco = quantity supplied by quantity demanded at rw. If that equals 50 billion dollars, then that supply curve is at 50 billion dollars. If net export changes, the demand curve is going to shift. The real exchange rate is the vertical axis variable, it is determined by the intersection point of the supply and demand curves. Case 1: effects of an increase in the world interest rate. There is an effect to the bottom diagram (the supply curve is going to shift, because nco = s). The supply will be shifted to the right due to a higher nco from first diagram. We can see by looking at the rw2 in the loanable funds diagram.

Related Questions

Assume that the U.S. dollar and the Japanese yen are the only two currencies in the world.

a. A bilateral nominal exchange rate S is the spot (now) exchange value of one currency in terms of the other and S can be written as dollars per 1 yen or yen per 1 dollar. If S = yen/1 dollar = 76.92 then the inverse 1/S gives dollars per 1 yen where 1/S = 1/(yen/1 dollar) = 1/76.92 = .013. If the 1/S increases to .014, has the dollar appreciated (1 dollar is worth more yen) or depreciated (1 dollar is worth less yen)? Explain.

b. Changes in demand and supply in the foreign exchange (FX) market determine the value of floating exchange rates S. If S is expressed as S = yen/1 dollar, then we have the FX market in terms of the demand and supply of dollars. (If S = dollars/1 yen, then we get the FX market in terms of the demand and supply of yen. Note also that no matter which currency the FX market is expressed, it is still an FX market where dollars are exchanged for yen. This means that an upward-sloping supply of dollars curve is exactly the same as a demand for yen curve and a downward-sloping demand for dollars curve is exactly the same as a supply of yen curve). Using S = yen/1 dollar and the FX market in terms of the demand and supply of dollars, an increase in S (dollar appreciation) leads to an increase in the number of dollars supplied (increase in the quantity of yen demanded). For dollar demand (or the supply of yen), an increase in S (dollar appreciation) leads to a decrease in the number of dollars demanded (or an increase in the number of yen supplied). The dollar demand curve shifts to the right if more yen are offered for dollars at any exchange rate S. An increase in dollar demand is caused mostly by private sector transactions in the current and capital accounts. Either an increase in demand for U.S. goods (merchandise trade in the current account) or an increase in demand for U.S. stocks and bonds (capital account inflows) will shift the dollar demand curve to the right. If private transactions in the current and capital accounts also cause shifts in the dollar supply curve, what are the corresponding factors that would lead to an increase in dollars supplied (yen demanded) at any exchange rate S?

brownhorse801

1. You will use this information for the next two questions. Where the supply of loanable funds curve crosses the demand for loanable funds curve, the interest rate is 4% and the quantity of loanable funds is $200 million. At the current interest rate, the quantity supplied of loanable funds is $50 million and the quantity demanded is $350 million. Which of the following scenarios might be true in this case?

A. The interest rate is 2.5% and there is a surplus of loanable funds.

B. The interest rate is 6.5% and there is a shortage of loanable funds.

C. The interest rate is 2.5% and there is a shortage of loanable funds.

D. The interest rate is 6.5% and there is a surplus of loanable funds

2. Using the information from the previous question, calculate the amount, in dollars, of the shortage or surplus of loanable funds.

sangriamammoth330

The equation for the demand curve is D = 100 - P. That means that the intercept on the price axis is 100, and the intercept on the quantity axis is also 100. The slope of the demand curve is -1. The equation for the supply curve is S = 9*P. That means that the supply curve begins at the origin, and increases with a slope of 9. For example, if the price is $1, the quantity supplied is 9. If the price is $20, the quantity supplied is 180. If you draw these curves you will notice that the intersection of supply and demand occurs at a price of $10 and a quantity of 90. That is the market equilibrium. We will call it the autarkic equilibrium in this market.

A. What is the consumer surplus?

B. What is the producer surplus

C. Using the same information as in problems A and B, now also assume that the country can trade this product at a world price of $20. Will the country be an exporter or an importer of the product?

D. Continuing with the information in the previous problem, at a price of $20, what is the quantity demanded? Plug the price into the demand formula in problem A

E. What is the new consumer surplus when the country begins trading at a price of $20?

F. What is the new producer surplus when the country begins trading at a price of $20?

G. What is the dollar value of the gains from trade?

raspberrybear41

ECON 1BB3 Lecture Notes - Loanable Funds, Canadian Dollar, Demand Curve

ECON 1BB3 Full Course Notes

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