Exam 7: Finance, Saving, and Investment

In the loanable funds market, as the interest rate rises the and the .

A small country is a net foreign borrower if its real interest rate without foreign borrowing is The world real interest rate.

Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds.

At the beginning of the year, Tomʹs Tubes had a capital stock of 5 tube inflating machines. During the year, Tom scrapped 2 old machines and purchased 3 new machines. Tomʹs capital stock at the end of year equals

The quantity of loanable funds demanded increases so there is a movement downward along the demand for loanable funds curve when

In January 2010, Timʹs Gyms, Inc. owned machines valued at $1 million. During the year, the market value of the equipment fell by 30 percent. During 2010, Tim spent $200,000 on new machines. During 2010, Timʹs net investment totalled

Saving by households

Technological progress that increases the expected profit shifts the demand for loanable funds curve

Does a change in the real interest rate shift the supply of loanable funds curve? Explain your answer.

In the loanable funds market, what variable changes to eliminate a shortage of loanable funds and how is the shortage eliminated?

Approximately, the real interest rate the inflation rate the nominal interest rate.

The tendency for private saving to increase in response to growing government deficits is known as the

When the real interest rate rises

Which of the following are included in the supply of loanable funds? i. private saving ii. government budget surplus iii. international borrowing

Explain how each of the following events affect the supply of loanable funds curve: a) The economy is in a recession so peopleʹs disposable income is lower. b) The stock market is booming so the peopleʹs wealth is higher. c) Fewer college graduates are finding jobs so expected future income is lower. d) The real interest rate increases.

Suppose that you took out a $1000 loan in January and had to pay $75 in annual interest. During the year, inflation was 6 percent. Which of the following statements is correct?

The table below shows data for the U.S. Nominal Interest Rate Inflation Rate 2006 5.25 4 2007 5 2 2008 4.5 4.3 Between 2007 and 2008 the real interest rate and caused a the demand for loanable funds curve.

Expected profit and the real interest rate affect investment decisions.

-In the above figure, the economy is at point a on the initial demand for loanable funds curve DLF₀. What happens if the real interest rate rises?

If the world real interest rate falls, then a country that is a net foreign lender