Econ Exam 2: Homework

Financial Intermediary

A financial institution that transforms investor funds into financial assets.

Decreases the interest rate

An increase in savings. A decrease in investor optimism.

Increases the interest rate

An investment in tax credit. An increase in large investments.

The source of the _________ for loanable funds is saving.

Supply

If the projected rate of return for a project is less than the interest rate for a loan that is necessary to complete the project, how will the borrowing business act?

The bank will not take out the loan.

Projected returns on investments

The business will not take out the loan.

consumption smoothing

borrowing in periods of low income and saving in periods of high income to make consumption less variable than income.

The _________ represents the price of a loan.

interest rate

The source of the _________ for loanable funds is investment.

Demand

What is crowding out?

a reduction in consumption and investment spending that results from gov burrowing.

Saving

Income> Consumption

"price" of loanable funds

Interest Rate

Which of the terms acts as the "price" in the market for loanable funds?

Interest Rate

As interest rate decreases, what happens to the quantity of loanable funds demanded?

Quantity Demanded will increase

Increase in Interest Rates

Quantity Supplied of loanable funds increases.

What effect will an increase in interest rates have on the quantity of loanable funds supplied?

Quantity Supplied will increase

Decrease in Interest Rates

Quantity demanded of loanable funds increases.

In the context of budget deficits, what is crowding out?

When gov burrowing leads to higher interest and corresponding decrease in private investments.