4.Consider the following demand and supply schedules of loanable funds. All figures are in billiondollars. Assume zero budget deficits and a closed economy.a.InterestRate12%10%8%6%4%2%Quantity of FundsDemanded$200$300$400$500$600$700Determine the following equilibrium outcomes:(1) The interest rate.(ii) Private savings.(iii) Government (public) savings.(iv) Private business investment.Quantity of FundsSupplied$1000$900$800$700$600$500 b. The government has decided to increase government spending (G) by $200 billion andplans to fund the spending by borrowing the funds and running a budget deficit. Assumethat the supply schedule remains unchanged. Determine the new values for:(1) The interest rate.(ii) Private savings.(iii) Government (public) savings.(iv) Private business investment.(v) The amount of crowding out.

Equilibrium in funds market and a stable interest rate is achieved at the point where demand and…

4. Consider the following demand and supply schedules of loanable funds. All figures are in billion dollars. Assume zero budget deficits and a closed economy. Interest Rate 12% 10% 8% 6% 4% 2% Quantity of Funds Demanded $200 $300 $400 $500 $600 $700 Quantity of Funds Supplied $1000 $900 $800 $700 $600 $500

4. Consider the following demand and supply schedules of loanable funds. All figures are in billion dollars. Assume zero budget deficits and a closed economy. Interest Rate 12% 10% 8% 6% 4% 2% Quantity of Funds Demanded $200 $300 $400 $500 $600 $700 Quantity of Funds Supplied $1000 $900 $800 $700 $600 $500

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) Customize and control Google Chrome Supply Demand Supply Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is an increase in the maximum contribution, from $5,000 to $8,000 per year. INTEREST RATE (Percent)
Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Suppose government budget requires the government to sell $30 billion bonds to the public. A. Use supply-demand diagram to analyze the impact on interest rate and investment. Explain the effect in words. B. Answer (a) assuming that the supply of loanable funds in perfectly inelastic.
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?
Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. Budget deficits decrease national saving. Budget deficits increase national saving. Budget deficits place a burden on future taxpayers. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 6%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt than…
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Interest Rate% 12% 10% 8% 6% 4% 2% 0 5 10 15 20 25 30 35 40 45 50 Supply of Savings Select one: a. The economic dips into a recession and firms see profits fall b. Firms become more optimistic about their expected profits c. An increase in business taxes d. A decrease in household wealth Quantity of loanable funds (billions) Refer to the graph above. Which of the following would cause interest rates to increase? Ti Demand for Borrowing
58. Consider the long-run theory of investment, saving, and growth. Suppose the government has a budget deficit of $600. If the country's level of national saving is $200, then private saving must be $400. $200. $800. -$400. $600.
5. Consider the long-run theory of investment, saving, and growth. Suppose the government has a budget deficit of $400. If the country's level of national saving is $200, then private saving must be a $800. b. $200. C. $400. d. $400.
41. Suppose that government institutes an investment tax credit and such policy generates an increase in the government budget deficit. This would: a. shift the saving curve (i.e. supply of loanable funds) to the left. b. cause the real interest rate to fall.
Question 1 The savings rate is a) the difference between gross income and disposable income. b) the percentage reduction in taxes due to permitted deductions. Oc) cash savings as a percentage of total net worth. d) the ratio of personal income to taxes paid on income. e) personal savings as a percentage of disposable income.
rates activity demand and supply for loans - Compatibility Mode Word Brianic References Mailings Review View Help Picture Format A A Aa- A 市。 ३- AaBbCcD AaBbCcDc AABBC AaBbCcl x A- A- I Normal I No Spac. Heading 1 Heading 2 nt Paragraph Styles 3 4. I 6 supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. INTEREST RATE IPercent) Supply Demand OTY OF LOANAHLEFUNDSTBons 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 4%. In this case, the quantity of loanable funds supplied is of loanable funds. This would encourage lenders to than the quantity of loans demanded, resulting in a the interest rates they charge, thereby the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward the equilibrium intere rate of 1 TCL10SE DISPLAY GREATNESS