finance_assignment3-1

finance_assignment3-1 - Finance Assignment 3-1 Page 42 6....

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Finance Assignment 3-1 Page 42 6. “Inflation can affect interest rates because of its effect on the supply of savings and the demand for loanable funds. Consider a situation in which the U.S. inflation rate is expected to increase. Households that supply funds may reduce their savings at any interest rate level so that they can make more purchases now before prices rise. This shift in behavior is reflected by an inward shift (to the left) in the supply curve of loanable funds. In addition, households and businesses may be willing to borrow more funds at any interest rate level so that they can purchase products now before prices increase. This is reflected by an outward shift (to the right) in the demand curve for loanable funds,” according to Jeff Madura, author of Financial Markets and Institutions . 7. “Inflation can affect interest rates because of its effect on the supply of savings and the demand for loanable funds. Consider a situation in which the U.S. inflation rate is expected to increase. Households that supply funds may reduce their savings at any interest rate level so that they can make more purchases now before prices rise. This shift in behavior is reflected by an inward shift (to the left) in the supply curve of loanable funds. In addition, households and businesses may be willing to borrow more funds at any interest rate level so that they can purchase products now before prices increase. This is reflected by an outward shift (to the right) in the demand curve for loanable funds. Supplies of loanable funds are willing to supply more funds if the interest rate (reward for supplying funds) is higher, other things being equal. A supply of loanable funds exists at even a very low interest rate because some households choose to postpone consumption until later years, even when the reward (interest rate) for saving is low,” according to Jeff Madura, author or
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This note was uploaded on 09/28/2010 for the course MBA 737 taught by Professor Wright during the Spring '10 term at Heidelberg.

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finance_assignment3-1 - Finance Assignment 3-1 Page 42 6....

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