3.12: Review Questions

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Explain the difference between an increase in demand and an increase in quantity demanded.

You see that price of laptop computers is falling at the same time that the quantity of laptop computers is rising. Would you attribute this to a change in supply or a change in demand for computers? Explain.

Outline the stages of the business cycle.

Use a graph of the supply of loanable funds and demand for loanable funds to explain what will happen if the Federal Reserve increases the money supply. What would you expect to happen to the interest rate when this occurs?

Your bank offers you a car loan with an interest rate of 6%. You expect inflation to be 2%. What is the real interest rate on this loan?

You see that First National Bank is willing to make you a four-year $40,000 car loan with an interest rate of 4.2%. However, the same bank will charge you 16.5% interest on a credit card that it issues. Why is the interest rate on the credit card so much higher than the interest rate on the car loan?

Last year, the exchange rate between the Korean won and the US dollar was /**/\text{KWN}\;1020=\text{USD}\;1/**/. This year, the exchange rate is /**/\text{KWN}\;1150=\text{USD}\;1/**/. Has the Korean won appreciated or depreciated over the past year? Explain.