Ch10SGH.docx - Chapter 12 Study Guide Name:_Prd:_ 10.1 Key...

Chapter 12 Study Guide Name:_____________________Prd:______
10.1
Key Terms:
Interest rate – annual interest expressed as a percentage of the amount borrowed or saved
demand for loans curve – a downward-sloping curve showing the negative relationship
between the interest rate and the quantity of loans demanded, other things constant
supply of loans curve – an upward-sloping curve showing the positive relationship between the
interest rate and the quantity of loans supplied, other things constant
Market for loans – the market that brings together borrowers (the demanders of loans) and
savers (the suppliers of loans) to determine the market interest rate
equilibrium interest rate - the only interest rate at which the quantity of loans demanded equals
the quantity of loans supplied
Think Critically:
1. Why couldn’t you open up a pizza restaurant tomorrow if you wanted to?
2. Why were many more consumers willing to buy automobiles when manufacturers offered
special zero percent interest rates?
3. Why do most people borrow funds to purchase a home or an automobile rather than wait
until they can afford to pay cash?
4. What happens to the demand for loans that causes the equilibrium interest rate to fall
during a downturn in the economy?
Graphing Exercise:
5. Home mortgage interest rates change over time with changes in the demand and supply
for loans. Use data given in the table to draw a line graph that shows the annual average
for new-home mortgage interest rates from 2006 through 2011. How much did this
interest rate fall from 2006-2011? How important is a change of 1 percent in the
mortgage interest rate to a person who wants to borrow $100,000 to buy a home?