In the loanable funds market, what will change to eliminate a shortage of loanable funds and how is the shortage eliminated?
What will be an ideal response?
The real interest rate changes to eliminate the shortage of funds. A shortage of funds means that businesses want to borrow more than households are willing to loan. (Alternatively, the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied.) The shortage of funds means that some businesses are willing to pay a higher interest rate in order to secure a loan. The real interest rate rises, and as it does so, the quantity of loanable funds demanded decreases (that is, the quantity of investment demanded decreases) and the quantity of loanable funds supplied increases (that is, the quantity of savings increases). Both changes help eliminate the shortage of loanable funds, and so the real interest rate rises until it reaches its equilibrium value.
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Moral hazard implies that
a. Insured individuals exercise less care because they have less incentive to do so b. Insured individuals exercise more care because they have less incentive to do so c. Insured individuals exercise more care because they have more incentive to do so d. Insured individuals exercise less care because they have more incentive to do so
Indirect business taxes have to be added to national income to get net domestic product because the
a. price of the good includes these taxes, which are not payments to any factor of production b. price of the good includes these taxes, which are payments to the government which is a factor of production c. price of the good excludes these taxes and therefore they have to be added to national income to get net domestic product d. price includes these taxes, which, although part of national income, are not accounted for e. national income includes all taxes that a firm pays to the factors of production
Fifteen years ago, China _________________ with the countries of Europe. Today, China ______________________ most European countries
A) traded a great deal; is not a trading partner with B) traded a great deal; is rarely a trading partner for C) did not trade much; is one of the top five trading partners for D) did not trade much; is rarely a trading partner for
When a government turns a deficit into a surplus we would expect
A) interest rates to rise. B) interest rates to decrease. C) the demand curve for loanable funds to shift rightward. D) that more investment is crowded out.