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Please solve this questions asap. its for group presentation for EFN 405

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2 . . ..
Interest
rate fell
Interest race
lowest in 2012
interest
rate
0.6
-1
2010
201 1
2012
2013
2014
2015
2.0
2.5
3.0
3.5
4.0
Loanable funds (trillions of 2012/13 dollars)
Figure I Interest Rates 2010 to 2014
Figure 2 The Loanable Funds Market In 2014
Note: The real interest rate is equal to the nominal interest rate minus inflation. (You
don't need to pay attention to this distinction for the questions; this is additional info
just for your understanding.)
Questions:
a) When an economic expansion gets going (i.e., an increase in economic
activity). what happens to the demand for loanable funds and the interest rate?
b) Looking at Figure 2, what are the reasons mentioned in the article for the
increase in supply of loanable funds to SLFlum?
c) How does a government budget deficit influence the loanable funds market,
and why does a decrease in the deficit lower the interest rate? (Hint: There are
two ways to model a government budget deficit: (1) as impacting supply, as
discussed in the lecture notes, or (2) as impacting demand, as in Figure 2. You
may use either approach. The result on interest rate is the same.)
d) Looking at Figure 1, what do you think happened to either the demand for or
the supply of loanable funds during 2011, 2012 and 2013?
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