b. Using the loanable funds theory, explain what will happen to the real equilibrium interest rate
under the following scenarios: (In your discussion describe or show with a graph the change in
the supply curve for loanable funds and the change in its intersection with the demand curve for
loanable funds). (1) The U.S. Federal Reserve engages in an open market expansion policy to
increase the money supply to speed up the economy. (2) The U.S. government has a larger
demand for funds to fund a large deficit, so will be seeking to borrow loanable funds by issuing a
large amount of new government bonds to sell to the public. (3) There is an expansion, and
businesses are expanding and increasing their plans to take on new capital projects, increasing
their demand for financing. (4) Wealth and liquidity rises in an economy, resulting in investors
and savers more willing to invest/lend funds in an economy..
b- Using the loanable funds theory- explain what will happen to the re.pdf
1. b. Using the loanable funds theory, explain what will happen to the real equilibrium interest rate
under the following scenarios: (In your discussion describe or show with a graph the change in
the supply curve for loanable funds and the change in its intersection with the demand curve for
loanable funds). (1) The U.S. Federal Reserve engages in an open market expansion policy to
increase the money supply to speed up the economy. (2) The U.S. government has a larger
demand for funds to fund a large deficit, so will be seeking to borrow loanable funds by issuing a
large amount of new government bonds to sell to the public. (3) There is an expansion, and
businesses are expanding and increasing their plans to take on new capital projects, increasing
their demand for financing. (4) Wealth and liquidity rises in an economy, resulting in investors
and savers more willing to invest/lend funds in an economy.
