Module 29

shifts of the demand for loanable funds are:

-changes in perceived business opportunities -changes in the government's borrowing

shifts of the supply of loanable funds are:

-changes in private savings behavior -changes in capital inflows

loanable funds market

a hypothetical market that illustrates the market outcome of the demand for funds generated by borrowers and the supply of funds provided by lenders

samantha's employer has given her a 5% raise for the coming year. if the inflation rate during the next year is 5.5% then her real wage will..

decrease by 0.5%

businesses will undertake projects if the rate of return is...

greater than or equal to the interest rate levied on the loan

in the short run, a(n) __________ in the money supply leads to a(n) _________ in the interest rate and vice versa

increase; fall

according to the loanable funds model, expansionary monetary policy...

increases the supply of loanable funds

in the ___________, changes in the money supply don't affect the interest rate

long run

real interest rate formula =

nominal interest rate - inflation rate

crowding out

occurs when a government deficit drives up the interest rate and leads to reduced investment spending

rate of return formula =

revenue from project - cost of project / cost of project

changes in aggregate demand affect aggregate output only in the ____________. in the __________, aggregate output is equal to potential output.

short run; long run

Fisher effect

states that an increase in expected future inflation drives up the nominal interest rate, leaving the expected real interest rate unchanged

governments can engage in saving when...

tax revenues are greater than expenditures

an expectation that perceived business opportunities will increase will generally cause...

the demand for loanable funds to increase

rate of return

the profit earned on the project expressed as a percentage of its cost