Econ 102 Section 6

@S6P2 If the market interest rate is 11 percent, the amount of investment demanded is :

$4000, When market rate of interest is 11%, investors will invest in projects F, G, H, I, J because the rate of return is greater that the rate of interest. 500 + 300 + 1000 + 200 + 2000 = 4000.

@S6p1 Which might produce a new equilibrium interest rate of 8 percent and a new equilibrium quantity of loanable funds of $150 billion?

Businesses become more optimistic about the return of investment spending.

@S6P4 if the supply of loanable funds curve shifts to the right, then it will result in a

Increase in the total amount of borrowing and a fall in the interest rate

In an open economy where government spending was $30 billion, consumption was $70 billion, taxes were $20 billion, and GDP was $100 billion this year, investment spending was $10 billion. As a result there was:

a net capital inflow of $10 billion

An important advantage of bonds as a financial asset is that they:

are standardized and therefore are easier to sell than loans.

Which financial asset is likely to be the most liquid?

bank demand deposits.

A decrease in the demand of loanable funds would most likely be caused by a(n):

decrease in the amount of expected business opportunities.

The existence of a federal budget deficit causes the:

demand for loanable funds to increase.

One way to reduce financial risk is to

diversify in a variety of assets, both financial and physical.

When a corporation borrows money from lenders in exchange for a fixed rate of return and a given maturity, the corporation is:

issuing bonds

@S6P5 A decrease in government borrowing will shift the demand for loanable funds to the:

left and decrease the interest rate

Financial intermediaries that manage a stock portfolio and sell shares of the stock portfolio itself to individual investors are:

mutual funds

@S6P3 when the interest rate rises from 6 percent to 8 percent, the:

quantity supplied of loanable funds rises by $20 billion.

When a corporation borrows money from a bank to expand its factory plant, the corporation is:

taking out a loan.