Question 1

What is the loanable funds market?

Accepted Answer

A market that shows the behavior of savers (who supply loans) and borrowers (who demand loans)

(the market reaches an equilibrium when demand and supply of loans are equal)

Question 2

What is the relationship between real interest rates and quantity of loanable funds demanded?

Accepted Answer

Inverse

(higher interest rates means less people want LFs)

Question 3

What is the relationship between real interest rates and quantity of loanable funds supplied?

Accepted Answer

Positive

(loaners can make a higher profit with higher interest rates)

Question 4

What is national savings?

Accepted Answer

The amount of income (GDP) that households/businesses/govts. save

Question 5

When is there equilibrium in the loanable funds market?

Accepted Answer

When the demand for and supply of loanable funds are balanced at a specific real interest rate

Question 6

What is capital inflow?

Accepted Answer

Financial capital entering a country

Inflow of foreign funds minus outflow of domestic funds

Question 7

What is the savings-investment spending identity?

Accepted Answer

The amount of money saved in an economy is the same amount of money that will be invested into new capital

4.7 The Loanable Funds Market, AP Macroeconomics Flashcards