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- In saving drepped sharply in the economy, what would be likely to happen to investiment? WhyThe enormous budget deficits of 2009 through 2011 meant that the federal government was borrowing upwards of $1.5 trillion per year. If that borrowing had limited the ability of the private sector to get financial capital for its purposes, economists would call this crowding out. There was O significant evidence this was a problem because interest rates were very high. O little evidence this was a problem because interest rates were very low. O significant evidence this was a problem because interest rates were very low. O little evidence this was a problem because interest rates were very high.Use the analysis for the market for loanable funds diagram to illustrate and explain how thefollowing government policy affect the economy’s saving and investment. Policy 1: Suppose thegovernment changes the tax code, allowing individuals to reduce their taxable income if they savemoney in registered retirement savings plans (RRSPs). Your response should answer the following questions:a. State and explain which loanable funds curve would this policy affect? b. Which way would the loanable funds curve shift? c. What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.
- Suppose people can consume the income they earn or save and invest it at rate ?. If we tax wealth at a rate greater than ?, how are people likely to adjust their rate of savings?The table sets out the data for an economy when the government's budget is balanced. Calculate the equilibrium real interest rate, investment, and private saving. If planned saving increases by $0.5 billion at each real interest rate, explain the change in the real interest rate. If planned Investment increases by $1 billon at each real interest rate, explain the change in saving and the real interest rata. The rest interest rate is percent year Real Interest rate (percent per year 5 6 7 B 9 10 Loanable funds Lasnable funds demanded supplied (billions of 2007 della 8.0 75 7.0 6.5 60 50 7.0 75 8.0 8.5 9.0 95 10.01. In France and Germany, it is difficult for a household to increase its borrowing based on an increase in the market value of the house. In addition, large down-payments (as a percentage of the house price) are required for house purchases. a. On the basis of this information, how would you expect a rise in house prices in France or Germany to affect spending by households? b. In the US or UK, loans are more easily available based on a rise in home equity and only a small down- payment is required. How would you expect your answer to question 1 to change when considering the US or UK? c. What do you conclude about the role of the financial accelerator in France and Germany compared with the UK and the US?
- There is a recent issuanceof asignificant number of treasury sharesat a higher interest rate. How wouldthis affect businesses: A. Individuals and businesses are encouraged to save, hence businesses will expect lower demand and lower prices.B. Individuals and businesses are encouraged to save, hence businesses will expect higher demand and lower prices.C. Individuals and businesses are encouraged to spend, hence businesses will expect lower demand and lower prices.D. Individuals and businesses are encouraged to spend, hence businesses will expect higher demand and higher prices.2. is it possible for total saving to fall when people beome more thirfty?Asap
- Suppose the government borrows $20 billion more next year than this year,a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.c. How does the elasticity of supply of loanable funds affect the size of these changes?d. How does the elasticity of demand for loanable funds affect the size of these changes?e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?Refer to the figure below to answer the following questions. Real interest rate (percent per year) 4 3 2 1 O Private saving is $ PSLF 15 20 25 Loanable funds (billions of 2007 dollars) Investment is $ In the situation above the government has a budget SLF saving is $25 billion. DLF billion. billion and nationalDescribe a change in the tax code that mightincrease private saving. If this policy wereimplemented, how would it affect the market forloanable funds?