Exam 2: Determination of Interest Rates

When there are expectations of higher inflation in the future, we would typically expect the supply of loanable funds to ____ and the demand for loanable funds to ____. ​

As a result of more favorable economic conditions, there is a(n)____ demand for loanable funds, causing an ____ shift in the demand curve.

The relationship between interest rates and expected inflation is often referred to as the loanable funds theory.

The federal government's demand for loanable funds is ____. If the budget deficit is expected to increase, the federal government's demand for loanable funds will ____.

The federal government's _________ determines the budget deficit and therefore determines the government's demand for loanable funds.

According to the Fisher effect, if the real interest rate is zero, the nominal interest rate must be equal to the expected inflation rate.

Assume that a credit crisis causes a weak economy, and the Fed increases money supply. These conditions should cause

Which of the following will probably NOT result in an increase in the business demand for loanable funds?

Assume that foreign investors who have invested in U.S. securities decide to decrease their holdings of U.S. securities and increase their holdings of securities in their own countries. This should cause the supply of loanable funds in the United States to______ and should place ____ pressure on U.S. interest rates.

The federal government's demand for funds is said to be interest-inelastic, or ____ to interest rates.

According to the Fisher effect, expectations of higher inflation cause savers to require a ____ on savings. ​

The supply of loanable funds in the United States is partly determined by the monetary policy implemented by the Federal Reserve System.

Since the aggregate demand for loanable funds is the sum of the quantities demanded by the separate sectors, and since most of these sectors are likely to demand a larger quantity of funds at lower interest rates (other things being equal), the aggregate demand for loanable funds is positively related to interest rates at any point in time.

Which of the following statements is incorrect?

When forecasting future interest rates, if the net demand for funds (ND)becomes _____, there will be ______ adjustment in interest rates.

The real interest rate can be forecasted by subtracting the ___ from the ____ for that period. ​

What is the basis of the relationship between the Fisher effect and the loanable funds theory?

Other things being equal, a smaller quantity of U.S. funds would be demanded by foreign governments and corporations if their domestic interest rates were high relative to U.S. rates.

Which of the following is likely to cause a decrease in the equilibrium U.S. interest rate, other things being equal? ​

In general, suppliers of loanable funds are willing to supply more funds if the interest rate is higher.