Homework Answers
5.
Ans:
Analysis:
- Due to inflation, funds for transactionary purposes is needed due o which people would hold more funds. This will cause decrease in supply of loanable funds and increase in demand for loanable funds.
New equilibrium:
Interest rate = 14%
Real interest rate = Nominal interest rate - expected inflation rate = 14% - 4% = 10% (Unchanged).
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4. Supply and demand for loanable funds alog The following graph shows the market for loanable funds in a closed economy. The upward sloping range line represents the supply of loanable funds, and the downward sloping blue line represents the demand for loanable funds ters ans access Tips ccess Tips 10 FOR YOU Suppo Tools NTEREST RATL Pent ar Principles of wand edback 100 LOANABLE FUNDS INTEREST RATE (Percent) Demand . 100 200 300 400 500 600 700 80000 1000...
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