B. A higher interest rate will lead to less quantity of loanable funds demanded as it will cost more to get the money. This means it costs more to borrow. This is a negative relationship.
2015 NITTANY NOTES ALL RIGHTS RESERVED ANY ATTEMPT TO REPRODUCE THESE NOTES IS PUNISHABLE BY LAWNittany NotesCheck outnittanynotes.com for Online notes!| 814-238-0623 Follow us atFacebook.com/NittanyNotes ECON 104.1Exam Pack #2 5 OF 22 TIERNEY IV. THE SUPPLY FOR LOANABLE FUNDS A.The supply side of the market consists of the households and the government. B.Households and the government may have extra money lying around so why not lend it and get paid for it. C.A lower interest rate will lead to less quantity of loanable funds supplied as people will not get paid as much. This is a positive relationship. V. EQUILIBRIUM OF LOANABLE FUNDS A.We are at equilibrium in the loanable funds market when an interest rate creates the same amount of funds supplied as demanded. B.This is just like the basic supply and demand model. C.Examples of changes demand (investment) are cash flow (the amount of money a firm already has) and incentives for investment (tax break). D.Examples of changes in supply (savings) are income and incentives to save (tax breaks).
2015 NITTANY NOTES ALL RIGHTS RESERVED ANY ATTEMPT TO REPRODUCE THESE NOTES IS PUNISHABLE BY LAWNittany NotesCheck outnittanynotes.com for Online notes!| 814-238-0623 Follow us atFacebook.com/NittanyNotes ECON 104.1Exam Pack #2 6 OF 22 TIERNEY ANNOUNCEMENTS:Problem Set 3 due (3/16). Chapter 12 PLA is due (3/15). ERRATA:None NOTES BEGIN: I. GROWTH OVER TIME A.There was no economic growth from 1,000,000 BC to 1300 AD. B.The first significant economic growth ever was due to the industrial revolution in the 19thcentury. 1. The key component to economic growth is increases in labor productivity so the technological changes that took place in the industrial revolution sparked growth.II. A MODEL OF GROWTH A. Recall that a model is just a simplification of something more complex. 1. There are many models that try and explain why and how countries grow. 2. We will look at the underlying theory and model behind the Solow Growth Model. B. The Solow Growth Model will include the per-worker production function and focus heavily on technological change and its effect on long-run economic growth. C. The per-worker production function show the relationship between RGDP per hour worked (Y/L) and capital per hour worked (K/L), keeping the level of technology constant. 1. Our endogenous variable is capital. 2. Our exogenous variable is technology. D. There are three main sources of technological change: 1.Better machinery and equipment 2.Increases in human capital 3.Better means of organizing and managing E. The per-worker production function increases but at a decreasing rate.
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