Answer to Question #228746 in Macroeconomics for asdfghjkl;

Question

All else equal, which of the following will occur as a result of an increase in a household’s disposable income? 

(i)   The household’s savings will increase.

(ii)   The will be a surplus of loanable funds in the loanable funds market.

(iii)   The real interest rate will rise.

(iv)  The equilibrium quantity of loanable funds will fall.

Only i and iii are correct.

Only iii and iv are correct.

Only i and ii are correct.

Only ii and iv are correct.

Answer 1

When disposable income increases, households have more money to either save or spend, which naturally leads to a growth in consumption. This leads to more supply of loanable funds due to increased savings.

Only i and ii are correct.