Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can describe the loanable funds market and name who supplies and who demands the funds. (Guide: “What the loanable funds market is”)
- I can explain why the demand for loanable funds slopes down against the real interest rate. (Guide: “The demand for loanable funds”)
- I can explain why the supply of loanable funds slopes up against the real interest rate. (Guide: “The supply of loanable funds”)
- I can explain why the graph uses the real interest rate, not the nominal rate. (Guide: “What the loanable funds market is”; Practice Q5(d))
Skills
- I can calculate private, public and national saving from Y, C, T and G. (Guide: Worked example 1; Practice Q1, Q7(a)–(b))
- I can link investment to national saving in a closed economy, and add net capital inflow for an open economy. (Guide: “National saving and investment”; Practice Q4, Q7(b))
- I can find the equilibrium from a table and measure a surplus or shortage at another rate. (Guide: “Equilibrium and disequilibrium”; Practice Q2, Q6(a)–(b))
- I can draw a correctly labelled loanable funds graph and show a shift with the new equilibrium. (Guide: Figures 1 and 2; Practice Q5(a)–(b))
Reasoning
- I can explain how a surplus or shortage moves the real interest rate back to equilibrium. (Guide: “Equilibrium and disequilibrium”; Practice Q2, Q6(b))
- I can predict the effect of a change in saving behaviour or an investment tax credit on the real interest rate and the quantity of funds. (Guide: Worked example 2, “What shifts the curves”; Practice Q3, Q6(c)–(d))
- I can show how government spending, taxes and borrowing change the real interest rate and private investment, using either a demand or a supply shift. (Guide: Worked example 3; Practice Q5(b)–(c))
- I can explain how a change in net capital inflow affects the real interest rate and investment. (Guide: “What shifts the curves”; Practice Q7(c))
All ticked? Move on to Topic 5.1, Fiscal and Monetary Policy Actions in the Short Run, or return to the course roadmap.