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- Suppose an individual decreases their consumption in a year, resulting in more saving for and consumption in the next year. In a taxation system that taxes consumption but not interest income, what will happen to this individual's present value ilfetime tax burden? Ot will Increase. It will decrease. OIt will stay the same.Manipulate the graph to show what will happen to supply and demand in the market for loanable funds when the government budget deficit increases, changing the equilibrium quantity of loanable funds by 3 percentage points. Ceteris paribus, what is the new interest rate? interest rate: 6 Ceteris paribus, private investment would decrease. not change. increase. % Interest rate (%) 10 9 8 7 6 4 3 2 1 0 0 Supply 6 Demand 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Quantity of loanable funds (% of GDP)True or False: With a discount bond, the return on a bond is equal to the rate of capital gain. A. True: A discount bond has no coupon payments so the return on the bond is equal to the rate of capital gain. B. False: Bond returns can never equal the rate of capital gain; there must be a capital loss or gain indicated. C. True: A discount bond pays fixed interest payments every year so the return is equal to the rate of capital gain. D. There is no way to determine this without the knowing the coupon amount and interest rate.
- In the loanable funds market, if firms become more optimistic about future profitability, then the a demand for loanable funds will increase, interest rates will increase, and private sector investment spending will increase. b demand for loanable funds will decrease, interest rates will decrease, and the equilibrium quantity of borrowing will decrease. c supply of loanable funds will increase, interest rates will decrease, and the equilibrium quantity of borrowing will increase. d supply of loanable funds will increase, interest rates will increase, and private sector investment spending will increase.The table below shows the amount of savings and borrowing in a market for loans to purchase homes, measured in millions of dollars, at various interest rates. InterestRate QuantitySupplied QuantityDemanded5% 98 2216% 129 1917% 160 1608% 178 1429% 196 12410% 214 106 What is the equilibrium interest rate and quantity of loaned funds? r = % Q = Suppose there is a decrease in demand of money, what will happen to interest rates and quantity? Increase in Interest Rates, Increase in Quantity?Increase in Interest Rates, Decrease in Quantity?Decrease in Interest Rates, Increase in Quantity?Decrease in Interest Rates, Decrease in Quantity?"Discuss the Impact of Taxes on Household Savings in the United States"
- A change in the tax laws that increases the supply of loanable funds will have a smaller effect on investment when a. the demand for loanable funds is more elastic and the supply of loanable funds is more inelastic. b. both the demand for and supply of loanable funds are more elastic. c. both the demand for and supply of loanable funds are more inelastic. d. the demand for loanable funds is more inelastic and the supply of loanable funds is more elastic. Which of the following would necessarily create a surplus at the original equilibrium interest rate in the loanable funds market? a. a decrease in the supply of or an increase in the demand for loanable funds b. an increase in the supply of or an increase in the demand for loanable funds c. an increase in the supply of or a decrease in the demand for loanable funds d. a decrease in the supply of or a decrease in the demand for loanable funds1. What are the ultimate reasons for analyzing the economic performance of a country/ market? How does the economic performance affect the components of the investment cash flows? 2. How the movements of house prices can be explained by the economic theory (law of demand and supply)?explain how income tax affects (i) household savings (ii) business investment
- Define the term Equity?Interest Rate 0 Multiple Choice O O A O S₁ BC Quantity Refer to the diagram. Suppose that the demand for loanable funds is D₁ and the supply of loanable funds initially is S₁. If the supply of loanable funds increases to So, the equilibrium quantity of funds borrowed will increase from E to F. increase from A to B. increase from B to C. So decrease from G to F. Do D₁1. Suppose the government borrows $20 million more next year than this year. a. How does the elasticity of the supply of loanable funds affect the size of thesechanges? b. How does the elasticity of the demand of loanable funds affect the size of thesechanges?