ECON 2305 Lecture Notes - Lecture 11: Demand Curve, Government Budget Balance, Capital Flight

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erinbat720

7 Dec 2016

School

University of Houston

Department

Economics

Course

ECON 2305

Professor

Arpita Chakravorty

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Document Summary

Chapter 19: a macroeconomic theory of the open. The market for loanable funds, which coordinates the economy"s saving, investment, and flow of loanable funds abroad (called the net capital outflow). All savers go to this market to deposit their saving, and all borrowers go to this market to get their loans. In this market, there is one interest rate, which is both the return to saving and the cost of borrowing. The supply of loanable funds comes from national saving (s), and the demand for loanable funds comes from domestic investment (i) and net capital outflow(nco). The purchase of a capital asset adds to the demand for loanable funds, regardless of whether that asset is located at home (i) or abroad (nco). Nco > 0 (net outflow) | nco < 0 (net inflow) Ex) when the u. s. real interest rate rises, the u. s. bond becomes more attractive to both mutual funds.

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QUESTION 11

If the demand for investment loans rises, this could be the result of

		the discovery of new and better roundabout methods of production.
		a lower rate of time preference in society.
		a lower interest rate.
		a higher interest rate.
		a and c

1 points

QUESTION 12

Which of the following statements is true?

		All persons have a high rate of time preference.
		People with a high rate of time preference are more likely to be borrowers than people with a low rate of time preference.
		People with a high rate of time preference are more likely to be lenders than people with a low rate of time preference.
		A high interest rate is the cause of a high rate of time preference.
		none of the above

1 points

QUESTION 13

Which of the following statements is true?

		The nominal interest rate is always higher than the real interest rate since the nominal interest rate equals the real interest rate plus the expected inflation rate.
		The nominal interest rate is always lower than the real interest rate since the nominal interest rate equals the real interest rate minus the expected inflation rate.
		The nominal interest rate can equal the real interest rate, but to do so the expected inflation rate must be zero percent.
		It is the nominal interest rate-not the real interest rate-that matters to borrowers.

1 points

QUESTION 14

If there is an increase in the expected inflation rate, then,

		the supply and demand for loanable funds will decrease.
		the supply and demand for loanable funds will increase.
		the supply of loanable funds will decrease, and the demand for loanable funds will increase.
		the supply of loanable funds will increase, and the demand for loanable funds will decrease.

1 points

QUESTION 15

If suddenly a 4 percent inflation rate (instead of a zero percent inflation rate) is expected by both suppliers and demanders in the loanable funds market, then

		the demand for loanable funds curve will shift rightward, and the supply of loanable funds curve will shift leftward.
		the demand for loanable funds curve will shift leftward, and the supply of loanable funds curve will shift rightward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift leftward.
		both the demand for loanable funds curve and the supply of loanable funds curve will shift rightward.

As the real interest rate in the domestic loanable funds market increases,

a. the cost of purchasing goods and services during the current period will decrease.
b. the net inflow of capital from abroad will increase.
c. the inflationary premium will rise and the money rate of interest will decline.
d. a trade surplus will occur.

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How do these things effect the U.S market of foreign-currency exchange and on net capital outflow (NCO): A tax reform that imposes higher capital gains tax to Americans involved in offshore banking?

Generalized increase in income tax rates not accompanied by any change in government spending.

A financial reform that sets limits to credit card fees.

A higher real interest rate in a more stable neighbor economy.

Unilateral removal of U.S import quotas.

Political instability.

A deficit-neutral tax incentive for exporting companies.

ECON 2305 Lecture Notes - Lecture 11: Demand Curve, Government Budget Balance, Capital Flight

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