Money, Credit, and FI Ch. 2 HW Review
Who are the demanders of loanable funds?
1.) Households 2.) Businesses 3.) Governments 4.) Foreign Participants
What factors cause the demand for funds curve to shift
1.) Utility Derived from Assets Purchased with Borrowed funds 2.) Restrictiveness of Nonprice Conditions on Borrowed Funds 3.) Economic Conditions
What factors cause the supply of funds curve to shift?
1.) Wealth 2.) Risk of the Financial Security 3.) Near-Term Spending needs 4.)Monetary Expansion 5.) economic conditions
Who are the suppliers of loanable funds?
1.) the Household sector 2.) Governments 3.) Foreign Investors
How does Risk of the Financial Security cause the supply of funds curve to shift?
As risk decreases, it becomes more attractive to suppliers of funds
How do Businesses demand loanable funds?
Demand funds to finance investments in long-term fixed assets and for short-term working capital needs
How does Near-Term Spending needs cause the supply of funds curve to shift?
When financial market participants have few near-term spending needs, the absolute value of funds available to invest increases
How does Monetary Expansion cause the supply of funds curve to shift?
When monetary policy objectives are to allow the economy to grow and expand, the Fed. Reserve increases the supply of funds available in the financial markets
How does Economic Conditions cause the supply of funds curve to shift?
While economic conditions get better, relative to other countries, the flow of funds to that country increases
How does wealth cause the supply of funds curve to shift?
as the total wealth of financial market participants increase, the absolute dollar value available for investment purposes increases
How do Households demand loanable funds?
reflects the demand for financing purchases of homes with mortgage loans, along with durable and nondurable goods
How do Governments demand loanable funds?
state and local governments often issue debt instruments to finance temporary imbalances between operating revenues and budgeted expenditures
how does the householder sector supply loanable funds?
supply funds while having excess income or when they want to reallocate their asset portfolio holdings. They determine the supply of loanable funds on the basis of general level of interest rates, total wealth, and risk of securities investments
How do Governments supply loanable funds
temporally generate more cash inflows than they have budgeted to spend. The funds are lent out to financial market fund users until they are needed
How do Foreign Participants demand loanable funds?
look for the cheapest source of dollar funds globally
How do Foreign investors supply loanable funds?
they increase their supply of funds to U.S. markets when interest rates are higher on U.S. financial securities than they are to comparable securities in their home countires
