Questions
ECN 001B C01-C06 WQ 2025 Homework 9 - Review
Multiple fill-in-the-blank
The graph above shows a hypothetical loanable funds market. Currently the market is in equilibrium and the equilibrium real interest rate is [Fill in the blank], percent. There is no government borrowing so that total borrowing by the private sector (firms and households) and total lending by the private sector both equal [Fill in the blank], million dollars. The government comes to the loanable funds market and borrows $50 million by selling bonds in order to finance an infrastructure project. This causes the real rate to change to [Fill in the blank], percent. Now, the private sector lending equals [Fill in the blank], million dollars and the private sector borrowing equals [Fill in the blank], million dollars, so that [Fill in the blank], million dollars of private sector borrowing is crowded out.
View Explanation
Verified Answer
Please login to view
Step-by-Step Analysis
First, I will restate the problem as given and identify the values to fill in from the graph and the scenario.
- The graph shows a loanable funds market with a downward-sloping private loan demand (DLF) and an upward-sloping private loan supply (SLF). The initial equilibrium occurs where the two curves intersect.
- The problem asks for: (1) the initial equilibrium real interest rate, (2) the initial total private sector borrowing and lending (which must be equal at equilibrium), (3) the new real interest rate after the government borrows $50 million, (4) the new private sector lending and borrowing amounts, and (5) how much private sector borrowing is crowded out.
Now, I will analyze each fill-in blank in turn, using the graph and standard loanable funds logic. Note: since there are no explicit multiple-choice options provided, I’ll interpret the numbers in the given answer set as th......Login to view full explanationLog in for full answers
We've collected over 50,000 authentic exam questions and detailed explanations from around the globe. Log in now and get instant access to the answers!
Similar Questions
Economists use _____ as a model to explain how savers and borrowers come together to determine the equilibrium rate of interest.
Businesses suddenly view investment projects as riskier. All else equal, what happens?
Ceteris paribus, a decrease in the demand for loanable funds
Use the following to answer question 3. Exhibit: Saving, Investment, and the Interest Rate 2 (Exhibit: Saving, Investment, and the Interest Rate 2) The economy begins in equilibrium at Point E, representing the real interest rate, 𝑟 1 , at which saving, 𝑆 1 , equals desired investment, 𝐼 1 . What will be the new equilibrium combination of real interest rate, saving, and investment if there is a technological innovation that increases the demand for investment goods?
More Practical Tools for Students Powered by AI Study Helper
Making Your Study Simpler
Join us and instantly unlock extensive past papers & exclusive solutions to get a head start on your studies!