Suppose the market for loanable funds is in equilibrium. Given the numbers below, determine the quantity of loanable funds demanded. GDP Consumption $100 billion $65 billion Taxes Net of $15 billion Transfers Government $20 billion
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- Suppose the government borrows $20 million more next year than this year. Answer questions d and ea. Draw and fully label a diagram to illustrate the market for loanable fund to analyzethis policy.b. Does the rate of interest rise or fall? c. What happens to investment? To private savings? To public savings? To nationalsavings? d. How does the elasticity of the supply of loanable funds affect the size of thesechanges? e. How does the elasticity of the demand of loanable funds affect the size of thesechanges?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 nationalThe table shows the demand for loanable funds schedule and the supply of loanable funds schedule when the government budget is balanced. Loanable funds Loanable funds demanded Real interest rate (percent per year) supplied If the govemment budget surplus is $1.0 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? (trillions of 2009 dotlars per year) 8.0 6.0 7.5 6.5 If the government budget surplus is $1.0 trillion, the real interest rate is percent a year. 7.0 7.0 6.5 75 If the government budget surplus is S1.0 trillion, the quantity of investment is S trillion, and the quantity of private saving is $ trillion. 6.0 8.0 5.5 8.5 10 5.0 9.0
- of stion 10 8 than $ t 2 0 interest rate (percent per year) 100 200 300 400 500 600 Loanable funds (billions of 2020 dollars) DLF The real interest rate is 5 percent a year and the economy is on curve DLF. The expected profit falls. With no change in the real interest rate, the new quantity of loanable billion. 13-02-2 20 E 25 OS demanded is 2011 1000 MANAMA L Time lefUse 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.The Atlantic Investment Tax Credit is a 10% tax credit available to businesses that make specific investments in the Atlantic region and the Gaspe Peninsula. The graph shows the market for loanable funds. Show the impact of this tax credit by moving the proper curve appropriately in the graph. The new equilibrium interest rate is The quantity of loanable funds is $ ક billion Which statement accurately describes the impact of the Atlantic Investment Tax Credit? Interest rate (%) 10 9 8 7 6 5 st 3 2 1 0 0 5 10 15 20 25 30 35 Quantity of loanable funds (in billions) 40 Supply Demand 45 50
- Interest 6% lonable fund is 4trillion. Suppose there was a change in the tax laws to encourage savers to save more and as a result, assume the equilibrium interest rate falls by 2 % point. By how much the equilibrium loanable funds saved and invested would rise or fall?1. Suppose the government borrows $20 million more next year than this year. a. Draw and fully label a diagram to illustrate the market for loanable fund to analyzethis policy. b. Does the rate of interest rise or fall? c. What happens to investment? To private savings? To public savings? To nationalsavings?Saving, Investment, and the Financial System - End of Interest rate Chapter Problems 24% 22 5. The government is running a budget balance of zero when it decides to increase education spending by $200 20 18 16 billion and finance the spending by selling bonds. The 14 accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. As a result of the 12 10 8 6 increase in education spending, the equilibrium interest rate 2 D by $200 1,200 percentage points, and the 400 600 800 1,000 Quantity of loanable funds (billions of dollars) equilibrium quantity of loanable funds by billion dollars. This an example of crowding out.
- GDP is $5 billion this year in a closed economy. Consumption is $3 billion, and government spending is $0.5 billion and taxes are $0.5 billion. How much is private saving? Select one: Oo $4.5 billion Ob 50 billions OC -50.5 billion Od $1.5 billion.QUESTION 9 Use the following diagram to answer this question The accompanying graph shows the market for loanable funds in equilibrium. Interest rate (%) 12 10 8 6 4 0 XH 2 3 E 4 6 5 Quantity of loanable funds (trillions of dollars) S Which of the following might produce a new equilibrium interest rate of 2% and a new equilibrium quantity of loanable funds of $5 trillion? OA. Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories. ⒸB. Congress decreases the tax rate on interest income. C. Capital inflows from foreign citizens are declining. D. The U.S. government offers a tax credit for firms that built new factories in the U.S.QUESTION 7 Use the following diagram to answer this question The accompanying graph shows the market for loanable funds in equilibrium. Interest rate (%) 12 10 8 6 4 2 0 S E X 2 D 3 4 6 5 Quantity of loanable funds (trillions of dollars) Which of the following might produce a new equilibrium interest rate of 2% and a new equilibrium quantity of loanable funds of $1 trillion? OA. Consumers have increased consumption as a fraction of disposable income. OB. Businesses have become more pessimistic about the future and, as result; they plan to cut back on their spending. OC. The federal government has a budget surplus rather than a budget deficit. OD. The federal government has a budget deficit rather than a budget surplus. uhmit. Click Save All Answers to save all answers.
