ECON 102 Lecture Notes - Lecture 7: Loanable Funds, Government Budget Balance

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8 Oct 2014

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Econ 102 - principles of macroeconomics lecture 7: the market for loanable. The previous lecture focused on the private market (government excluded) The inclusion of government adds an expansion to the graph. Budget surplus (tax revenue greater than expenditure): supply for loanable funds increases. Budget deficit (tax revenue less than expenditure): demand for loanable funds increases. Changes in savings lead to changes in loanable funds (refer to previous lecture. Sep. 25th, 2014 notes: disposable funds, expected future income, wealth, default risk. In case of government deficit, the following scenario ensue: excess demand appears, interest rate increases as a result, supply increases because of the change in interest rate, the excess demand is met. The government enters the loanable funds market when it has surplus or deficit. Crowding out effect as per the following diagram. The initial supply of loanable funds at equilibrium was billion and interest rate was 6%.

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 ______%.

carmineminnow364

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