CH01 - 1-1Chapter 1Determinants of Interest...

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Unformatted text preview: 1-1Chapter 1Determinants of Interest Rates1-2Loanable Funds ApproachInterest ratesiSupplyDemandLoanablefundsDemand = Supply1-3Business investment the sum total of investment opportunities for all businesses in the economy. This is a list of investments from those with the highest returns to the lowest returns.Consumer borrowing sum total of consumer borrowing in the economy.Government deficits. The Demand for Funds1-4ROR$AcceptReject.20.15.10.05Cost of fundsProject #1Project #2Project #3Project #4Capital Budgeting1-5Individual savings. Most economists assume that as the interest rate increases consumers save larger dollar amounts. Thus, the supply curve is upward sloping.Business savings. Retained earnings for all businesses.Increases in the money supply.Supply of Funds1-6An Increase in the Money SupplyInterest ratesi1Supply1DemandLoanablefundsSupply2i2Increase in money supply1-7Increased Government BorrowingInterest ratesi2Demand1Demand2LoanablefundsSupplyi1Increase in government borrowing1-8Total Income = Total ProductionIncome Per Capita = Production Per CapitaIncomeProductionCircular Flow for the Entire Economy1-9The Federal Reserve is the central bank of the United States. It has two parts.12 regional Federal Reserve Banks. The country is divided into 12 Federal Reserve regions, each of which has a Federal Reserve bank with branches in different parts of the district....
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CH01 - 1-1Chapter 1Determinants of Interest...

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