Use the loanable funds theory to explain questions a, b and c. a. If the housing market improves,...

Question:

Use the loanable funds theory to explain questions a, b and c.

a. If the housing market improves, what should happen to interest rates? Why?

b. A decrease in employment will most likely cause interest rates to _ _ _ _ _ _ . Why?

c. How would the reduction in Japan's rates impact interest rates in the United States?

Loanable Funds :

The loanable fund's theory is related to the interest rates in the market. According to this theory, the interest rates in the market are set by the supply and demand forces of loanable funds. It includes all forms of borrowings, such as bonds, loans, and others.

Answer and Explanation:

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a) With the improvement in the housing market, the wealth of the households will increase. This increased wealth increases the spending of people. As...

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Loanable Funds: Definition & Theory

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Chapter 25 / Lesson 29
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