chapter 7 Flashcards
(14 cards)
change in the value of capital is
net investment
a rise in the real interest rate has what effect on the quantity of loanable funds demanded?
decreases q of loanable funds demanded
a fall in the real interest rate has what effect on the quantity of loanable funds demanded?
increases q of loanable funds demanded
a rise in the real interest rate has what effect on the quantity of loanable funds supplied?
increases q of loanable funds supplied
a fall in the real interest rate has what effect on the quantity of loanable funds supplied?
decreases q of loanable funds supplied
a government budget surplus does what to the supply of loanable funds?
increases
a government budget deficit does what to the demand for loanable funds?
increases
a government budget surplus does what to the real interest rate, investment, and private saving?
real interest rate: falls
investment: increases
private saving: decreases
a government budget deficit does what to the real interest rate, investment, and private saving?
real interest rate: up
investment: down
private saving: up
national saving is made up of
private saving and government saving
ricardo-barro effect
the tendency for private saving to increase in response to growing government deficits
crowding-out
When government borrowing uses up financial resources, it raises interest rates and makes it harder or more expensive for businesses and individuals to borrow money. (happens in a deficit)
if wealth increases, what does it affect/ what happens to the loanable funds graph?
the supply of loanable funds shifts leftward - households don’t need to save as much
if default risk increases, what happens to loanable funds graph?
supply of loanable funds shifts leftward - lenders become more cautious and are less willing to supply funds
