Explain why the demand curve for loanable funds has a negative slope
What will be an ideal response?
The demand for loanable funds reflects the willingness of firms to borrow the money that they need to launch new investment projects, such as building a new factory or overhauling the equipment that they use for production. Most firms do not have the funds internally in retained earnings to finance these projects, so they must borrow them. Firms undertake these ventures in order to earn profit. Each of these projects has a rate of return. It is profitable for a firm to undertake a project as long as the rate of return of the project exceeds the cost of borrowing, or the interest rate. That is, if a firm expects to earn a 12% return on opening a new factory, the project will be profitable if the firm can borrow the funds at a rate less than 12%. As the interest rate falls, more investment projects become viable for the firm, so as the interest rate falls, the quantity of loanable funds demanded rises because the firm requires more loanable funds to invest in these newly profitable projects.
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Refer to Table 4-4. Suppose that the quantity of labor demanded decreases by 40,000 at each wage level. What are the new free market equilibrium hourly wage and the new equilibrium quantity of labor?
A) W = $9.50; Q = 380,000 B) W = $10.00; Q = 390,000 C) W = $8.00; Q = 350,000 D) W = $8.50; Q = 340,000
In making a cost-benefit analysis of whether to purchase a parking permit for on-campus parking, the benefit of buying a parking permit includes:
a. the time saved by not having to look for parking on the street. b. the ability to pay the price of the parking permit. c. the need of the student body to support campus policies. d. the cost of gasoline burned on the way to school.
Following the stock market crash of 1929 depositors demanded their money back, the Fed failed to act as the lender of last resort by lending banks money to repay depositors, and between 1930 and 1933 about one-third of all banks had failed
Indicate whether the statement is true or false
Economist C believes that if tax rates are cut, tax revenue is likely to remain constant. This economist most likely believes that the percentage decrease in tax rates will ______________________________ percentage rise in the tax base
A) be larger than the resulting B) be equal to the resulting C) be smaller than the resulting D) occur long after the E) a and d