Explain the relationship between the real interest rate and the demand for loanable funds. Compare that relationship to the relationship between expected profit and the demand for loanable funds
What will be an ideal response?
The real interest rate determines the quantity of loanable funds demanded. There is an inverse relationship between the real interest rate and the quantity of loanable funds demanded. Expected profit affects investment and, because investment is a major source of the demand for loanable funds, the expected profit rate affects the demand for loanable funds. An increase in the expected profit from investing increases investment and thereby increases the demand for loanable funds. Hence there is a positive relationship between the demand for loanable funds and the expected profit rate.
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Refer to Figure 15-16. Which of the following would be true if government regulators require the natural monopoly to produce at the economically efficient output level?
A) This results in a misallocation of resources. B) The firm will sustain persistent losses and will not continue in business in the long run. C) The marginal cost of producing the last unit sold exceeds the marginal benefit. D) The firm will break even.
The difference between the total amount that people would have been willing to pay for the total quantity produced and consumed in a market and what they actually pay at the market clearing price is called
A) production excess. B) excess demand. C) market surplus. D) consumer surplus.