var imagesXXXlarge = ",,,"; var imagesXXlarge = "krugmanapecon2e_mod29_fig-07,krugmanapecon2e_mod29_fig-08,,"; var imagesLarge = ",,,,,"; var imagesSmall = "krugmanap2e-ch29-fig-6,,,,,"; var imagesMedium = ",,,,,,"; xBookUtils.showAnswers['krugmanapecon2e_mod29_cyu_1a'] = "As capital flows into the economy, the supply of loanable funds increases. This is illustrated by the shift of the supply curve from S1 to S2 in the accompanying diagram. As the equilibrium moves from E1 to E2, the equilibrium interest rate falls from r1 to r2, and the equilibrium quantity of loanable funds increases from Q1 to Q2. "; xBookUtils.showAnswers['krugmanapecon2e_mod29_cyu_1b'] = "Savings fall due to the higher proportion of retired people, and the supply of loanable funds decreases. This is illustrated by the leftward shift of the supply curve from S1 to S2 in the accompanying diagram. The equilibrium moves from E1 to E2, the equilibrium interest rate rises from r1 to r2, and the equilibrium quantity of loanable funds falls from Q1 to Q2. "; xBookUtils.showAnswers['krugmanapecon2e_mod29_cyu_2a'] = "We know from the loanable funds market that as the interest rate rises, households want to save more and consume less. But at the same time, an increase in the interest rate lowers the number of investment spending projects with returns at least as high as the interest rate. The statement “Households will want to save more money than businesses will want to invest” cannot represent an equilibrium in the loanable funds market because it says that the quantity of loanable funds offered exceeds the quantity of loanable funds demanded. If that were to occur, the interest rate would fall to make the quantity of loanable funds offered equal to the quantity of loanable funds demanded."; xBookUtils.showAnswers['krugmanapecon2e_mod29_cyu_3a'] = "The real interest rate will not change. According to the Fisher effect, an increase in expected inflation drives up the nominal interest rate, leaving the real interest rate unchanged. "; xBookUtils.showAnswers['krugmanapecon2e_mod29_cyu_3b'] = "The nominal interest rate will rise by 3%. Each additional percentage point of expected inflation drives up the nominal interest rate by 1 percentage point."; xBookUtils.showAnswers['krugmanapecon2e_mod29_cyu_3c'] = "As long as inflation is expected, it does not affect the equilibrium quantity of loanable funds. Both the supply and demand curves for loanable funds are pushed upward, leaving the equilibrium quantity of loanable funds unchanged. "; xBookUtils.showAnswers['krugmanapecon2e_mod29_fr_2_rubric'] = "
Rubric for FRQ 2 (4 points)
1 point: This causes an increase (rightward shift) in the supply of loanable funds.
1 point: This causes a decrease (leftward shift) in the demand for loanable funds.
1 point: This causes an increase (rightward shift) in the demand for loanable funds.
1 point: This causes a decrease (leftward shift) in the supply of loanable funds.
"; xBookUtils.showAnswers['krugmanapecon2e_sect05_fr_1_rubric'] = "Rubric for FRQ (5 points)
1 point: The vertical axis is labeled “Interest rate (r ),” the horizontal axis is labeled “Quantity of loanable funds (QLF),” the demand for loanable funds curve is labeled and downward-sloping, and the supply of loanable funds curve is labeled and upward-sloping.
1 point: Showing the equilibrium interest rate on the vertical axis to the left of where the supply and demand curves intersect, and showing the equilibrium quantity of loanable funds on the horizontal axis below where the supply and demand curves intersect
1 point: Showing a shift of the demand for loanable funds to the right
1 point: Showing the new equilibrium interest rate and quantity of loanable funds using the old supply curve and the new demand curve
1 point: The higher interest rate decreases investment spending (and interest-sensitive consumption spending) and therefore reduces real GDP.
";