This topic contains a solution. Click here to go to the answer
« previous next »

Author Question: In the loanable funds market, what will change to eliminate a shortage of loanable funds and how is ... (Read 158 times)

sjones

  • Hero Member
  • *****
  • Posts: 520
on: Jun 29, 2018
In the loanable funds market, what will change to eliminate a shortage of loanable funds and how is the shortage eliminated?
 
  What will be an ideal response?

Question 2

To fight a recession, an appropriate monetary policy would be that the Fed conducts an open market operation that ________ government securities, ________ the federal funds rate, and ________ aggregate demand.
 
  A) buys; lowers; decreases
  B) sells; lowers; increases
  C) sells; raises; decreases
  D) buys; lowers; increases
  E) sells; raises; increases


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

jessofishing

  • Sr. Member
  • ****
  • Posts: 329
Reply #1 on: Jun 29, 2018
Answer to Question 1

The real interest rate changes to eliminate the shortage of funds. A shortage of funds means that businesses want to borrow more than households are willing to loan. (Alternatively, the quantity of loanable funds demanded exceeds the quantity of loanable funds supplied.) The shortage of funds means that some businesses are willing to pay a higher interest rate in order to secure a loan. The real interest rate rises, and as it does so, the quantity of loanable funds demanded decreases (that is, the quantity of investment demanded decreases) and the quantity of loanable funds supplied increases (that is, the quantity of savings increases). Both changes help eliminate the shortage of loanable funds, and so the real interest rate rises until it reaches its equilibrium value.

Answer to Question 2

D


sjones

  • Member
  • Posts: 520
Reply 2 on: Jun 29, 2018
:D TYSM

JaynaD87

  • Member
  • Posts: 368
Reply 3 on: Yesterday
Excellent

« previous next »
 

Did you know?

In 1844, Charles Goodyear obtained the first patent for a rubber condom.

Did you know?

Elderly adults are at greatest risk of stroke and myocardial infarction and have the most to gain from prophylaxis. Patients ages 60 to 80 years with blood pressures above 160/90 mm Hg should benefit from antihypertensive treatment.

Did you know?

The cure for trichomoniasis is easy as long as the patient does not drink alcoholic beverages for 24 hours. Just a single dose of medication is needed to rid the body of the disease. However, without proper precautions, an individual may contract the disease repeatedly. In fact, most people develop trichomoniasis again within three months of their last treatment.

Did you know?

Autoimmune diseases occur when the immune system destroys its own healthy tissues. When this occurs, white blood cells cannot distinguish between pathogens and normal cells.

Did you know?

Illness; diuretics; laxative abuse; hot weather; exercise; sweating; caffeine; alcoholic beverages; starvation diets; inadequate carbohydrate consumption; and diets high in protein, salt, or fiber can cause people to become dehydrated.

Sleep Requirements Change with Age Sleep Requirements Change with Age
Elaboration Likelihood Model of Attitude Change Elaboration Likelihood Model of Attitude Change
Main Hall, Trajan's Market Main Hall, Trajan's Market
Global Climate Change Global Climate Change
Coral growth rings as an indicator of environmental change Coral growth rings as an indicator of environmental change
Climate change is an important vector for human diseases Climate change is an important vector for human diseases
Video: Introduction to Herpes

For a complete list of videos, visit our video library