Exam 9: Savings, Interest Rates, and the Market for Loanable Funds

You are thinking about building a new mall. Your trusted economic consultants say the mall will bring a 7 percent real rate of return. Because you know that you can borrow the necessary money at 5 percent,

Arguably, interest represents

Which event could be expected to shift a nation's demand for loanable funds, as shown in the accompanying graph?

If people have more equity in their homes, it is the same as if

Explain how the loanable funds market is a link between micro and macro. Hint: Which part of the economy is primarily affected by interest rates?)

What is the effect of an increase in the productivity of capital?

Assume households become thriftier. This would cause

You borrow $10,000 today at a nominal rate of 5 percent; inflation for the past 10 years has been exactly 2 percent. Today, inflation instantly rises to 4 percent and stays that way for the duration of your loan. Based on the above information and all else being equal, today

Which is a correct version of the Fisher equation?

Refer to the following graph that describes income and consumption patterns over a typical life cycle to answer the next questions: -Which part of the accompanying graph depicts dissaving?

"Interest is the reward for saving." Or, alternatively, "interest is the opportunity cost of consumption." Explain how these two statements are equivalent.

The interest rate is

By 1981

The demand for loanable funds is

Refer to the following graph to answer the next questions: -Assuming the figure represents the market for loanable funds, and that point C represents $40 million and point D represents $70 million, then it would be true that

A profit-maximizing firm will borrow money at a given interest rate, and use that money to fund an investment, if and only if the

What will happen to the U.S. workforce over the next decade or so?

The demand for loanable funds increases while the supply of loanable funds simultaneously decreases. This would cause the

Two nations are located next to one another. In Nation A, people are very thrifty and spend much less than their incomes; moreover, Nation A's government runs a balanced budget every year. In Nation B, people spend all of their incomes, but their government runs consistent deficits. Thus,

If household wealth falls and governments run fewer deficits, we would correctly say that