Neco Model Questions Vol1 2023 Economics Question 44

Practice objective / multiple choice question 44 from the 2023 Neco Model Questions Vol1 Economics examination.

Neco Model Questions Vol1 2023 Economics Objective / Multiple Choice Medium Difficulty
Question 44 NECO_MODEL_QUESTIONS_VOL1 • 2023 • ECONOMICS • objective

In the loanable‑funds market, investment demand is \(I = 500 - 20r\) (million Naira) and the supply of funds is \(S = 100 + 30r + G\) (million Naira), where \(r\) is the real interest rate in percent and \(G\) is government borrowing (million Naira). (i) With \(G = 50\), determine the equilibrium interest rate and the level of investment. (ii) If government borrowing rises to \(G = 80\), find the new equilibrium interest rate and investment. (iii) Suppose the Central Bank conducts an open‑market operation that shifts the supply curve down by 10 million at every interest rate, while \(G\) remains 80. Compute the resulting equilibrium interest rate and investment.

Answer Options

A. Initial: r = 6 %, I = 340 million; after G=80: r = 5.8 %, I = 350 million; after supply shift: r = 6.0 %, I = 345 million
B. Initial: r = 7.5 %, I = 365 million; after G=80: r = 6.9 %, I = 378 million; after supply shift: r = 7.1 %, I = 372 million
Correct Answer C. Initial: r = 7 %, I = 360 million; after G=80: r = 6.4 %, I = 372 million; after supply shift: r = 6.6 %, I = 368 million
D. Initial: r = 8 %, I = 380 million; after G=80: r = 7.2 %, I = 390 million; after supply shift: r = 7.4 %, I = 386 million
Correct Answer
C
Correct Option:
Initial: r = 7 %, I = 360 million; after G=80: r = 6.4 %, I = 372 million; after supply shift: r = 6.6 %, I = 368 million

About This Question

This is Neco Model Questions Vol1 2023 Economics Question 44. It is one of the objective questions from the 2023 Neco Model Questions Vol1 Economics examination.

Difficulty level: Medium .

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