ECON 1B03 Chapter Notes - Chapter 13: Mexican Peso, Capital Flight, Loanable Funds

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whiteweasel16

8 Dec 2012

School

McMaster University

Department

Economics

Course

ECON 1B03

Professor

Bridget O' Shaughnessy

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ECON 1B03 Full Course Notes

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Supply and demand for loanable funds and for foreign currency exchange. If the amount of national savings exceeds the amount needed to finance the purchase of domestic capital, the amount left over can be used to finance the purchase of an asset abroad then nco is positive. If national savings is insufficient to finance the purchase of domestic capital, the shortfall can be met by the savings of foreigners then nco is negative. A higher real interest rate encourages people to save and therefore raises the quantity of loanable funds made available by national savings. But makes borrowing to finance capital projects more costly, which in turn discourages investment and reduces the quantity of loanable funds demanded. Demand curve slopes downward because a higher interest rate decreases the quantity of loanable funds demanded. Supply curve slopes upward because a higher interest rate increases the quantity of loanable funds supplied.

Related Questions

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

13. Fred is considering expanding his dress shop. If interest rates rise he is

a.	less likely to expand. This illustrates why the supply of loanable funds slopes downward.
b.	more likely to expand. This illustrates why the supply of loanable funds slopes upward.
c.	less likely to expand. This illustrates why the demand for loanable funds slopes downward.
d.	more likely to expand. This illustrates why the demand for loanable funds slopes upward.

14. You are thinking of buying a bond from Knight Corporation. You know that this bond is long term and you know that Knight's business ventures are risky and uncertain. You then consider another bond with a shorter term to maturity issued by a company with good prospects and an established reputation. Which of the following is correct?

a.	The longer-term would tend to make the interest rate on the bond issued by Knight higher, while the higher risk would tend to make the interest rate lower.
b.	The longer-term would tend to make the interest rate on the bond issued by Knight lower, while the higher risk would tend to make the interest rate higher.
c.	Both the long-term and the higher risk would tend to make the interest rate lower on the bond issued by Knight.
d.	Both the long-term and the higher risk would tend to make the interest rate higher on the bond issued by Knight.

15. In an imaginary economy, consumers buy only sandwiches and magazines. The fixed basket consists of 20 sandwiches and 30 magazines. In 2006, a sandwich cost $4 and a magazine cost $2. In 2007, a sandwich cost $5. The base year is 2006. If the inflation rate in 2007 was 16 percent, then how much did a magazine cost in 2007?

a.	$1.87
b.	$2.08
c.	$2.32
d.	$3.00

16. An increase in the price of Irish whiskey regularly purchased by Americans will be reflected in

a.	both the U.S. GDP deflator and the U.S. CPI.
b.	neither the U.S. GDP deflator nor the U.S. CPI.
c.	the U.S. GDP deflator, but not the U.S. CPI.
d.	the U.S. CPI, but not the U.S. GDP deflator.

17. Which of the following would be human capital and physical capital, respectively?

a.	for an accounting firm, the accountants' knowledge of tax laws and the number of hours worked by those accountants
b.	for a grocery store, grocery carts, and cash registers.
c.	for a restaurant, the chefs' knowledge about preparing food and equipment in the kitchen
d.	for a library, the building, and the reference librarians' knowledge of the Internet

18. If a production function has increasing returns to scale, the output can be more than doubled if

a.	labor alone doubles.
b.	all inputs but labor double.
c.	all of the inputs double.
d.	None of the above is correct.

19.Suppose that an American company opens and operates a restaurant in Ireland. This is an example of

a. foreign direct investment. American saving is used to finance Irish investment.

b. foreign direct investment. American saving is used to finance American investment.

c. foreign portfolio investment. American saving is used to finance Irish investment.

d. foreign portfolio investment. American saving is used to finance American investment.

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ECON 1B03 Chapter Notes - Chapter 13: Mexican Peso, Capital Flight, Loanable Funds

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