-The Above Table Has the Private Demand for Loanable Funds

question 187

Multiple Choice

$$\begin{array} { c c c } \begin{array} { c } \text { Real interest rate } \\\text { (percent per year) }\end{array} & \begin{array} { c } \text { Demand for loanable funds Supply of loanable funds } \\\text { (billions of } \\\text { 2005 dollars) }\end{array} & \begin{array} { c } \text { (billions of } \\\text { 2005 dollars) }\end{array} \\\hline 3 & 750 & 450 \\4 & 700 & 500 \\5 & 650 & 550 \\6 & 600 & 600 \\7 & 550 & 650 \\8 & 500 & 700 \\9 & 450 & 750\end{array}$$
-The above table has the private demand for loanable funds and the private supply of loanable funds schedules.If the government budget surplus is $200 billion, and there is a Ricardo-Barro effect, the equilibrium real interest rate is ________ and the equilibrium quantity of loanable funds is ________.

• A) 6 percent; $600 billion
• B) 4 percent; $700 billion
• C) 8 percent, $500 billion
• D) 8 percent; $700 billion
• E) 4 percent; $500 billion

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Definitions:

Income Effect

How an individual's or an economic system's revenue shift affects the demand level for a particular good or service.

Substitution Effect

The economic principle that as the price of a good or service rises, consumers will replace it with cheaper alternatives, affecting the demand for goods.

Normal Good

A Normal Good is a type of good for which demand increases as the income of consumers increases and decreases when consumer income decreases, all else being equal.

Indifference Curve

A curve showing the different combinations of two products that yield the same satisfaction or utility to a consumer.