Graphs

Question 1

What is on the axis for the market of loanable funds

Answer 1

• y axis is interest rates
• x axis is quantity of loanable funds

Question 2

What is supply in the market for loanable funds

Answer 2

(Y-T-C)+(T-G)

Question 3

What is the demand in the market for loanable funds

Answer 3

People’s need for investments (I)

Question 4

How does supply and demand act in the market for loanable funds

Answer 4

• demand increases as interest rates decrease so demand is downward sloping
• supply increases as interest rates increase so supply is upward sloping

Question 5

What is on the axis for the money market graph

Answer 5

• y axis is price levels/value of money
• x axis is quantity of money

Question 6

What is supply and demand on the money market graph

Answer 6

Literally just money supply and money demanded

Question 7

How does supply and demand act in the money market graph

Answer 7

• money supply is said to be a quantity fixed by central bank so is vertical
• money demand increases as the value of money decreases so is downward sloping

Question 8

What is on the axis for ADAS

Answer 8

• y axis is price level
• x axis is real output/real GDP

Question 9

What is on the axis for the Philips curve

Answer 9

• y axis is inflation rate
• x axis is unemployment rate

Question 10

How does the Philips curve act in the short run versus the long run

Answer 10

• short run is downward sloping
• long run is vertical fixed at the natural rate of unemployment

Question 11

What is on the axis for NCO graph

Answer 11

• y axis is real interest rate
• x axis is NCO (generally centred around 0)

Question 12

How does NCO depend on interest rate

Answer 12

• since high interest rates make domestic assets more attractive, high interest rate means negative NCO
• therefore the curve is downward sloping

Question 13

What is on the axis for the forex market

Answer 13

• y axis is real exchange rate
• x axis is quantity of £ exchanged

Question 14

What is the supply and demand on the forex market

Answer 14

• supply is NCO
• demand is NX

Question 15

What does the supply look like on forex market

Answer 15

It is vertical as NCO is determined by interest rates and not exchange rates and we hold interest rates constant

Question 16

What does demand look like on forex market

Answer 16

• since a higher exchange rate mean there is a lower NX
• the curve is downward sloping