True or False: The price-level effect describes a change in the interest rate due to a change in the expected inflation rate. o False O True The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the expected inflation rate. INTEREST RATE Adjust the following graph to show the effect of this increase in the expected inflation rate. SLF2 The price-level effect The expectations effect The income effect SLF1 The liquidity effect F2 QUANTITY OF LOANABLE FUNDS PLF1 DLF Which of the following refer to changes that affect the demand for loanable funds but not the supply? Check all that apply. SLF

True or False: The price-level effect describes a change in the interest rate due to a change in the expected inflation rate. o False O True The following graph shows the supply and demand curves in the market for loanable funds. Consider an increase in the expected inflation rate. INTEREST RATE Adjust the following graph to show the effect of this increase in the expected inflation rate. SLF2 The price-level effect The expectations effect The income effect SLF1 The liquidity effect F2 QUANTITY OF LOANABLE FUNDS PLF1 DLF Which of the following refer to changes that affect the demand for loanable funds but not the supply? Check all that apply. SLF

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Modern Macroeconomics And Monetary Policy

Section: Chapter Questions

Problem 11CQ

See similar textbooks

Similar questions

In which of the following situations isit most advantageous to be lending? Select one: O A The real interest rate is 2 percent and the nominal interest rate is 10 percent. O B. The nominal interest rate is 4 percent and the real interest rate is -2 percent. OC. The nominal interest rate is 1 percent and the real interest rate is 0 percent. O D. The real interest rate is 4 percent and the nominal interest rate is 7 percent.
Use the graph to answer the question that follows. Quantity of Loanable Funds (S) Assume that the loanable funds market is in equilibrium, as shown in the graph.If households become concerned about retirement income and spend less,what will happen in this market for loanable funds? O The demand for funds will increase, as will the equilibrium interest rate. O Both the demand for funds and the supply of funds will decrease, with an indeterminate impact on the equilibrium interest rate. ) The demand for funds will decrease, and the equilibrium quantity of funds transacted will erease below Fo. O Both the demand for funds and the supply of funds will icrease, with an increase in the quantity of funds transacted. O The supply of funds will increase, and the equilibrium interest rate wi fall blow ro. Real Interest Rate
The enormous budget deficits of 2009 through 2011 meant that the federal government was borrowing upwards of $1.5 trillion per year. If that borrowing had limited the ability of the private sector to get financial capital for its purposes, economists would call this crowding out. There was O significant evidence this was a problem because interest rates were very high. O little evidence this was a problem because interest rates were very low. O significant evidence this was a problem because interest rates were very low. O little evidence this was a problem because interest rates were very high.
5. Fiscal policy, the money market, and aggregate demand Suppose there is some hypothetical economy in which households spend $0.50 of each additional dollar they earn and save the $0.50 they have left over. The following graph plots the economy's initial aggregate demand curve (AD)). Suppose now that the government increases its purchases by $2.5 billion. Use the green line (triangle symbol) on the following graph to show the aggregate demand curve (AD) after the multiplier effect takes place. Hint: Be sure the new aggregate demand curve (AD) is parallel to AD. You can see the slope of AD, by selecting it on the following graph. ? PRICE LEVEL 116 114 112 110 108 106 104 102 100 100 AD₁ 102 106 108 110 OUTPUT (Billions of dollars) 104 112 114 116 AD₂ AD₂
Please pleaseee do this Question : For this question assume that the real money demand function is L(R, Y) = kY - hR where k > 0 represents the sensitivity of the money demand to income and h > 0 represents the sensitivity of the money demand to the interest rate. Suppose that these sensitivity parameters are not known for the economy of Macroland and there are two possibilities: it is either i) high k and low h, or ii) low k and high h. To understand which one of these two scenarios is correct you analyze a given policy change: an increase in the overall level of taxes. Using the AA-DD model, compare and contrast the short run effects of this policy change in Macroland under these two scenarios. Explain your results intuitively.
Table shows the amount of savings and borrowing in a market, measured in millions of dollars, at various interest rates. What is the equilibrium interest rate and quantity in the capital financial market? Now, imagine the supply curve shifts so that there will be $50 million less supplied at every interest rate. Calculate the current and the new equilibrium interest rate and quantity, and explain the situation: the reasons of decrease of supply and what new equilibrium mean. Interest rate Qs Qd 5 200 470 6 270 320 7 320 320 8 350 300 9 400 200 10 500 100
Suppose that Shonda borrows $20,000 to purchase a car. The bank charges her a nominal interest rate of 9%. If the inflation rate decreases from 4% to 3%, which of the following is true? OA decrease in inflation decreases the real interest rate and hence decreases the real cost of borrowing. OA decrease in inflation increases the real interest rate and hence decreases the real cost of borrowing. O The nominal interest rate does not change and hence the real cost of borrowing remains the same. O A decrease in inflation increases the real interest rate and hence increases the real cost of borrowing.
Questron 3 Suppose the nominal interest rate is currently 24 per cent and expected inflation is 16 per cent. IF the expected inflastion rate doubles to 3.2 per cent, wtich of the foloving would be an implication of the Fisher effect? O The real interest ate talls by 1.6 per cent O The nominal interant rate doubies to 48 per cent O The nominal interast rate rises n 5.6 per cent O The nominal incerest rate des co 4.0 por cent
Inflation has increased to new highs in recent years. How does expectation of higher inflation in the coming years affect interest rates? O A. Demand for bonds declines while supply of bonds rises resulting in higher nominal interest rates in the market. O B. Higher expectation of inflation will lower demand for money causing interest rates to decline in the future O C. Demand for bonds rises ip the expectation of higher nominal interest rates leading to a rise in the interest rate. O D. Demand for bonds increases while supply of bonds declines leading to a higher nominal interest rate.
Quantity of Nominal interest rate money demanded Quantity of money supplied (percent per year) (trillions of dollars) (trillions of doll ars) 2.9 2.5 2.8 2.5 2.7 2.5 8 2.6 2.5 9. 2.5 2.5 10 2.4 2.5 The above table has the demand and supply for money. What is the equilibrium nominal interest rate? O a. 7 percent O b. 6 percent O c. 9 percent O d. 5 percent O e. 8 percent
Question 33 The Federal Funds Rate is O t he interest rate on the 30-year Treasury bond O another name for the real interest rate O also known as the "prime rate" O the interest rate banks charge each other on overnight loans O the interest rate on the 3-month Treasury bill
1. Suppose that the economy has the following money supply and demand equations: Money Supply: M = 8000Money Demand: M= 10,000 – 40,000rwhere money is in billions of dollars and interest rates, r , is written as a decimal(e.g., an interest rate of 10% would be written as .1 in the equation).A. Determine the equilibrium interest rate and quantity of money.B. What will happen in the money market if the interest rate is currently 10%?What is the amount of excess supply of or excess demand for money?C. Show in graph that at this interest rate (10%) there is disequilibrium in themoney market.