39 Are the following statements true or not true?1. Because of the crowding out effect in the circular flow model of a closed economy, a fiscal expansionleads to a higher real interest rate, and therefore less private investment and a lower level ofaggregate production.2. In the circular flow model of a closed economy, excess demand in the market for loanable funds leadsto a higher real interest rate, such that the supply of loanable funds increases and the demand forloanable funds decreases, until the loanable funds market is again in equilibrium.Statement I is true; statement II is true.O Statement I is true; statement Il is not true.Statement I is not true; statement II is true.Statement I is not true; statement II is not true. 38The table below shows the composition of GDP in the U.S. in 2016 according to the income approach andthe expenditure approach. VWe also know that labour income in the U.S. in 2016 was 60% of GDP. Are thefollowing statements about the U.S. in 2016 then true or not true?1. Compensation of employees in 2016 was 60% of GDP and operating surplus and mixed income in2016 was 33.3% of GDP (Le. z - 60 and az = 33.3).2. As private consumption was higher than labour income in 2016, private saving was negative in 2016.The composition of GDP (in percent, 2016)Income approach:• taxes less subsidies on production and imports: 6.7• compensation of employees:• operating surplus and mixed income:Expenditure approach:• private consumption:• gross capital formation:• government consumption:• net exports:68.520.414.3-2.8Source: OECDStatement I is true; statement II is true.Statement I is true: statement Il is not true.Income approach:• taxes less subsidies on production and imports: 6.7• compensation of employees:• operating surplus and mixed income:Expenditure approach:• private consumption:• gross capital formation:• government consumption:• net exports:68.520.414.3-2.8Source OECDStatement I is true; statement II is true.Statement I is true; statement II is not true.Statement I is not true; statement II is true.Statement I is not true; statement II is not true.

Option A - both statements are true Fiscal expansion shifts IS curve to the right which increases…

Answered: 39 Are the following statements true or…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Using a correctly labeled loanable funds graph, show the effect of the contractionary fiscal policy decreasing government spending on real interest rates. Given the change in the real interest rate. What is the impact on each of the following? a. investment b. Economic growth rate. Explain. c. The international value of the dollar. Explain. Now assume instead that the government takes no policy action to fix the problem of the economy that is operating above full employment. In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain.
A stock market boom of 2019 increased wealth by trillions of dollars Explain the effect of this increase in wealth on the equilibrium real interest rate, investment, and saving The graph shows the market for loanable funds. Show the effect of a stock market boom that increases wealth Draw either a new supply curve labeled SLF, or a new demand curve labeled DLF, Draw a point to show the new equilibrium real interest rate and the new equilibrium quantity of loanable funds the equilibrium real interest rate and A stock market boom OA raises, decreases saving and increases investme OB. raises; increases saving and decreases investment OC. raises; decreases investment and saving OD. lowers; increases saving and investment 0 10.0 90- 8.0 70 60 50- 40- 30- 2.0 104 Real interest rate (percent per year) 5.0 SLF 00- DLF G 10 10 12 14 16 10 Loanable funds (billions of 2012 dollars) >>> Draw only the objects specified in the question
According to how we model the Loanable Funds market in Ch. 6 (considering household savings and taking (T – G) as government’s net ‘saving,’ which could be negative it there were a budget deficit), which of the following shifts the Supply of Loanable Funds curve to the left? (T = taxes; G = government spending.) Group of answer choices A) higher tax rates on business investment spending B) a change in tastes toward consuming less C) higher budget deficit D) change in tastes toward saving more E) lower budget deficit
1) The government's budget deficit increases, and at the same time the trade deficit grows. This will lead to a(n) _____ in the demand and a(n) _____ in the supply of loanable funds in domestic markets. increase; increase decrease; increase decrease; decrease 2) A temporary decrease in government purchases would cause: a rightward shift in the saving curve and a leftward shift in the investment curve. a rightward shift in the saving curve and a rightward shift in the investment curve. no shift in the saving curve, but a leftward shift in the investment curve.
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumerswill be affected if the budget deficit increases to $250 billion per year. Draw a graphto show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interestdue to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds. c. How would your conclusion differ if taxpayers fully anticipate future tax increases to offset the increase in the budget deficit? d. Do you think the Ricardian Equivalence is realistic?
Suppose the government ran a budget surplus in 2018 and a larger surplus in 2019. The loanable funds model would predict that, as a result of the increase in the surplus, A. both the government debt and interest rates increased between 2018 and 2019. B. the government debt decreased and interest rates increased between 2018 and 2019. both the government debt and interest rates decreased between 2018 and 2019. C. D. the government debt increased and interest rates decreased between 2018 and 2019.
The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. Supply 5 Demand 1 100 200 300 400 500 600 LOANABLE FUNDS (Billions of dollars) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is than the quantity of loans ▼ of loanable funds. This would encourage lenders to the interest rates they charge, thereby demanded, resulting in a the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward 0% the equilibrium interest rate of INTEREST RATE (Percent)
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $250 billion per year. b. Assuming taxpayers do not anticipate an increase in the future market rate of interest due to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds. c. How would your conclusion differ if taxpayers fully anticipate future tax increases to offset the increase in the budget deficit? d. Do you think the Ricardian Equivalence is realistic?
Refer to the figure below to answer the following questions. Real interest rate (percent per year) CON 6 5 4 3 2 1 0 H H Select one: DLF₂ DLFO 0.5 1.0 1.5 2.0 Loanable funds (trillions of 2002 dollars) DLF₁ Refer to Figure 23.2.2. In Figure 23.2.2, a decrease the real interest rate will result in a movement from point E to A. point F. B. point G. C. point H. D. point. O E. either point G or point F. Figure 23.2.2
During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would shift: a. the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right. b. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right. c. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left. d. the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left.
Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market. look at image for graph What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will increase because the cost of borrowing increases. decrease because the cost of borrowing increases. decrease because the cost of borrowing decreases. increase because the cost of borrowing decreases.
The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the government is experiencing a balanced budget. Assume that the U.S. government bails out several troubled banks without increasing taxes, creating a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. D S INTEREST RATE F2 -O- F3 Ö+ F4 C D F5 a F6 N F7 51- F8 5+ F9 Ⓒ F10 -0. F11 F12 Fn Lock Ins P

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