1.Which of the following would cause velocity to decrease? 2. If demand for loan
ID: 1165168 • Letter: 1
Question
1.Which of the following would cause velocity to decrease?
2. If demand for loanable funds decreases, what will happen to real interest rates and the economic growth?
Real Interest Rates / Economic Growth
3. With a reserve requirement of 20% and required reserves of $25,000, a bank has a total of
4.The supply of loanable funds will increase if
1.Which of the following would cause velocity to decrease?
An increase in public confidence in the economy increases. Banks stay open for longer hours. Workers are paid more often. Interest rates on credit cards increase. Interest rates on checking accounts increase.Explanation / Answer
Answer 1 : If interest rate on credit card increase people will use less credit and there by spending on goods and services will decrease what which resulted in velocity to decrease.
Answer : When demand for loanable fund decreases then real interest rate decreases. When real interest rate decrease it causes long term economic growth to increase . As a result productivity increased which bring overall economic growth in the country . This result shows that there is a decrease in interest rate at increase in economic growth.
Answer 3 : 20% is reserve requirement
Required reserve = $25000
Total demand deposits = $1250000
As per bank requirements in there bank it should maintain reserve $25000.
Answer4 : The supply of loanable fund increases if a personal income tax cut increases household savings . As saving increases supply of loanable fund increases which reduces the equilibrium interest rates and increases equilibrium quantity.
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