Author Question: If a surplus of loanable funds exists in the loanable funds market, the real interest rate ________ ... (Read 123 times)

Arii_bell · **on:** Jun 29, 2018

If a surplus of loanable funds exists in the loanable funds market, the real interest rate ________ and the quantity of saving ________.

A) falls; increases
B) rises; decreases
C) falls; does not change
D) rises; increases
E) falls; decreases

Question 2

The slope of the AE curve is .80. What is the expenditure multiplier? Everything else the same, by how much does equilibrium aggregate expenditure increase if

a. exports increase from 1.75 trillion to 2.25 trillion?
b. government expenditure on goods and services decrease from 2.0 trillion to 1.8 trillion?
c. investment increases from 1.2 trillion to 2.3 trillion?

heinisk01 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

E

Answer to Question 2

The multiplier is 5.
a. The change in equilibrium aggregate expenditure equals the multiplier times the change in autonomous expenditure, which is 0.5 trillion. So the change in equilibrium expenditure is .
b. The change in equilibrium aggregate expenditure equals the multiplier times the change in autonomous expenditure, which is -0.2 trillion, that is, government expenditures decrease by . So the change in equilibrium expenditure is 5 (-0.2 trillion) = -1.0 billion.
c. The change in equilibrium aggregate expenditure equals the multiplier times the change in autonomous expenditure, which is 1.1 trillion. So the change in equilibrium expenditure is .