All other things equal, an increase in government borrowing will ________ a.shift the demand curve for loanable funds to the right, increasing interest rates. b.shift the supply curve of loanable funds to the right, decreasing interest rates. c.shift the demand curve for loanable funds to the left, decreasing interest rates. d.shift the supply curve of loanable funds to the left, but interest rates remain unchanged.

Government borrowing is financed thorough loanable funds. Increase in government borrowing means…

Answered: All other things equal, an increase in…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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What is the likely effect of a substantial increase in government borrowing on the private investment in an economy? A. Private investment will increase due to more government spending. B. Private investment will decrease due to the crowding-out effect. C. Private investment will remain unchanged as government borrowing does not affect private sectors. D. Private investment will first decrease, then increase as government spending stimulates the economy.
17. Use the market for loanable funds shown in the accompanying diagram to explain what happens to private savings, private investment spending, and the interest rate if each of the following events occur. Assume that there are no capital inflows or outflows. a. The government reduces the size of its deficit to zero. b. At any given interest rate, consumers decide to save more. Assume the budget balance is zero. c. At any given interest rate, businesses become very optimistic about the future profitability of invest- ment spending. Assume the budget balance is zero. Interest rate 1 х S D Q₁ Quantity of loanable funds
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.
1) In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change as a result?
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. Draw a graph to show your conclusion. 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.
27) What is the most likely impact of an increase in the government budget deficit on the market for loanable funds? a) Overall demand for loanable funds decreases. b) Overall supply of loanable funds increases. c) Real interest rates fall. d) Private investment spending decreases.
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 graph to 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 budgetdeficit on the market for loanable funds. c. How would your conclusion differ if taxpayers fully anticipate future tax increases tooffset the increase in the budget deficit? d. Do you think the Ricardian Equivalence is realistic?
Consider the following policy scenarios and for each scenario diagrammatize and fully explain using analysis for the market for loanable funds how the following government policies affect the economy’s saving and investment. [Kindly note: please show Diagram and give Detailed Explanation (a) Scenario Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. (b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs)
Loanable fund graph- show the result of a fiscal, crowding out and the effect on the supply of loanable funds
Refer to the figure below to answer the following questions. Real interest rate (percent per year) 4 3 2 1 0 15 20 PSLF 25 SLF DLF 30 Loanable funds (billions of 2007 dollars) In the situation above the government has a budget Private saving is $ billion. Investment is $ billion and national saving is $ billion.
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.
QUESTION 10 Suppose a new tax bill has just been passed that raises taxes for the majority of people in a country. As a result of the tax increase, explain how interest rates will be affected using the loanable funds theory. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). B I U S Paragraph Arial 14px A v Ix X O 8 OQ x2 X, +, RBC 田用区因

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	a.	shift the demand curve for loanable funds to the right, increasing interest rates.
	b.	shift the supply curve of loanable funds to the right, decreasing interest rates.
	c.	shift the demand curve for loanable funds to the left, decreasing interest rates.
	d.	shift the supply curve of loanable funds to the left, but interest rates remain unchanged.