Chapter 29, Problem 2FRQ

a.

To determine

The effect on demand or supply curve for the loanable fund market if capital inflow increases.

Explanation of Solution

In a loanable fund market, if capital inflow increases, then the money supply will increase the loanable fund market. The supply curve will shift towards the right.

Economics Concept Introduction

Supply curve of loanable funds: It refers to the relationship between the quantities of loanable funds supplied with respect to the interest rate.

b.

To determine

The effect on the demand or supply curve for the loanable fund market if businesses are pessimist about the future.

Explanation of Solution

If businesses are pessimistic about future growth, then they will not do expansions and will require less money. Thus, demand for loanable funds will decrease shifting the demand curve towards the left.

Economics Concept Introduction

Supply curve of loanable funds: It refers to the relationship between the quantities of loanable funds supplied with respect to the interest rate.

c.

To determine

The effect on demand or supply curve for the loanable fund market if government borrowings are increased.

Explanation of Solution

If a government increases the borrowings, then the demand for loanable funds will increase. This increase will shift the demand curve towards the right.

Economics Concept Introduction

Demand curve of loanable funds: It refers to the relationship between the quantities of loanable funds demanded with respect to the interest rate.

d.

To determine

The effect on the demand or supply curve for the loanable fund market if the private savings rate decreases.

Explanation of Solution

If the private saving rates are decreased, then people will spend more and save less. This will reduce the lending capacity of the bank and it will lead to shifting the supply curve towards the left.

Economics Concept Introduction

Supply curve of loanable funds: It refers to the relationship between the quantities of loanable funds supplied with respect to the interest rate.