The Loanable Funds Market

What does the loanable funds market illustrate?

• The interaction of borrowers and savers in the economy

• The federal budget process

• The stock market fluctuations

• The process of issuing new currency

What happens when real interest rates increase?

• The quantity of loanable funds demanded decreases

• The quantity of loanable funds demanded increases

• The quantity of loanable funds supplied increases

• The quantity of loanable funds supplied decreases

Which factor increases the demand for loanable funds?

• High rate of inflation predicted

• Decrease in loans, credit, and borrowing

• Decrease in deficit spending

• Increase in foreign demand for domestic currency

What is the relationship between real interest rates and the quantity of loanable funds supplied?

• No relationship

• Direct, or positive

• Cyclical

• Inverse

What leads to an increase in the supply of loanable funds?

• Decrease in foreign purchases of domestic assets

• Decrease in the discount rate by the Federal Reserve

• High rate of inflation predicted

• Consumers increase their consumption

What does deficit spending by the government do to the demand for loanable funds?

• It stabilizes the demand

• It increases the demand

• It decreases the demand

• It has no effect

What happens to the real interest rate when the supply of loanable funds decreases?

• It decreases

• It remains the same

• It increases

• It fluctuates unpredictably

What is the role of the Federal Reserve mentioned in the context of the loanable funds market?

• It regulates the stock market

• It directly lends money to consumers

• It sets the federal budget

• It controls the discount rate affecting the supply of loanable funds

What does an increase in savings rate do to the supply of loanable funds?

• Decreases the demand instead

• Has no effect on the supply

• Increases the supply

• Decreases the supply

What is the effect of foreign purchases of domestic assets on the supply of loanable funds?

• Increases the supply

• Has no effect on the supply

• Increases the demand

• Decreases the supply