A more elastic supply of loanable funds would result in national saving changing by lessas a result of the increase in government borrowing.The more elastic the demand for loanable funds, the larger the change in national saving as a result of the increase in government borrowing.Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future.This belief would cause people to save more today, which would increase private saving and increaseThis would reduce the effect of the reduction in public saving on the market for loanable funds.the supply of loanable funds. Suppose the government borrows $20 billion more next year than this year.The following graph shows the market for loanable funds before the additional borrowing for next year.Use the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more nextyear than this year.Interest Rate (Percent)10983210■0Demand107020 30 40 50 60Loanable Funds (Billions of dollars)80Supply90 100As a result of this policy, the equilibrium interest rate risesNew SupplyWhich of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply.U Public saving decreases by exactly $20 billion.✔ Private saving decreases by less than $20 billion.National saving decreases by more than $20 billion.✔ Investment decreases by less than $20 billion.

The neoclassical theory of interest, often known as the loanable funds theory of interest, was…

A more elastic supply of loanable funds would result in national saving changing by_less as a result of the increase in government borrowing. The more elastic the demand for loanable funds, the larger the change in national saving as a result of the increase in government borrowing. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. This belief would cause people to save more today, which would increase private saving and increase This would reduce ▼ the effect of the reduction in public saving on the market for loanable funds. the supply of loanable funds.

A more elastic supply of loanable funds would result in national saving changing by_less as a result of the increase in government borrowing. The more elastic the demand for loanable funds, the larger the change in national saving as a result of the increase in government borrowing. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. This belief would cause people to save more today, which would increase private saving and increase This would reduce ▼ the effect of the reduction in public saving on the market for loanable funds. the supply of loanable funds.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

A more elastic supply of loanable funds would result in national saving changing by less
as a result of the increase in government borrowing.
The more elastic the demand for loanable funds, the larger the change in national saving as a result of the increase in government borrowing.
Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future.
This belief would cause people to save more today, which would increase private saving and increase
This would reduce the effect of the reduction in public saving on the market for loanable funds.
the supply of loanable funds.

Suppose the government borrows $20 billion more next year than this year.
The following graph shows the market for loanable funds before the additional borrowing for next year.
Use the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more next
year than this year.
Interest Rate (Percent)
10
9
8
3
2
1
0
■
0
Demand
10
70
20 30 40 50 60
Loanable Funds (Billions of dollars)
80
Supply
90 100
As a result of this policy, the equilibrium interest rate rises
New Supply
Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply.
U Public saving decreases by exactly $20 billion.
✔ Private saving decreases by less than $20 billion.
National saving decreases by more than $20 billion.
✔ Investment decreases by less than $20 billion.

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