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?