After you have studied Economics in the News on pp. 556 – 557 , answer the following questions.
a. Why does the news article say that bond prices and interest rates move in opposite directions? Is it correct? Explain.
b. How does a government budget deficit influence the loanable funds market, and why does a decrease in the deficit lower the real interest rate?
c. When an economic expansion gets going, what happens to the demand for loanable funds and the real interest rate?
d. If an expanding economy increases government tax revenue, how will that affect the loanable funds market and the real interest rate?
e. Looking at Fig. 1 on p. 557 , what must have happened to either the demand for or the supply of loanable funds during 2011, 2012, and 2013?

Data from in Fig. 1

Transcribed Image Text:

Interest rate (percent per year) 3 2 ● O Nominal interest rate 2011 Interest rate lowest in 2012 2010 Year Figure 1 Interest Rates 2010 to 2014 Falling interest rate in 2014 Real interest rate 2012 2013 2014 2015