Question 11 (3 points) If private savings increase: Question 11 options: The sup
ID: 1154981 • Letter: Q
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Question 11 (3 points)
If private savings increase:
Question 11 options:
The supply of loanable funds will decrease, interest rates will decrease and investment will increase.
The supply of loanable funds will increase, interest rates will decrease and investment will decrease.
The supply of loanable funds will increase, interest rates will decrease and investment will increase.
The supply of loanable funds will decrease, interest rates will increase and investment will decrease.
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Question 12 (3 points)
Crowding out refers to:
Question 12 options:
Savings in the banking system is reduced due to low interest rates.
Private investment decreases when government borrowing increases.
Private savings decreases when government borrowing increases.
A shortage of bonds results in higher bond prices.
The supply of loanable funds will decrease, interest rates will decrease and investment will increase.
The supply of loanable funds will increase, interest rates will decrease and investment will decrease.
The supply of loanable funds will increase, interest rates will decrease and investment will increase.
The supply of loanable funds will decrease, interest rates will increase and investment will decrease.
Explanation / Answer
Answer : 11) Option c is correct.
Loanable fund depends on private savings. In case of increasing private savings, the loanable funds become able to supply more as a result the supply curve for loanable fund shift to rightward which decrease the interest rate and when interest rate fall then people borrow more and invest more.
12) Option b is the correct answer.
Because in case of expansionary fiscal policy the government spend more which lead to deficit situation in the economy and to maintain the economic situation the government borrow more which increase the interest rate and at higher interest rate people save more which decrease the private investment in the economy. This whole situation is called the effect of crowding out.
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