Congress estimated that the cost of increasing support and expanding pre-kindergarten education and infant and toddler childcare would cost $28 billion in 2014. Since the U.S. government was running a budget deficit at the time, assume that the new pre-K funding was financed by the government borrowing, which increases the demand for loanable funds without affecting supply. This question considers the likely effect of this government expenditure on the interest rate. a) Draw typical demand (D1) and supply (S1) curves for loanable funds without the cost of the expanded pre-K programs accounted for. Label the vertical axis “Interest rate” and the horizontal axis “Quantity of loanable funds.” Label the equilibrium point (e1) and the equilibrium interest rate (r1). b) Now draw a new diagram with the cost of the expanded pre-K programs included in the analysis. Shift the demand curve in the appropriate direction. Label the new equilibrium point (E2) and the new equilibrium interest rate (r2). c) How does the equilibrium interest rate change in response to government expenditure on the expanded pre-K programs? Explain.
Congress estimated that the cost of increasing support and expanding pre-kindergarten education and infant and toddler childcare would cost $28 billion in 2014. Since the U.S. government was running a budget deficit at the time, assume that the new pre-K funding was financed by the government borrowing, which increases the demand for loanable funds without affecting supply. This question considers the likely effect of this government expenditure on the interest rate. a) Draw typical demand (D1) and supply (S1) curves for loanable funds without the cost of the expanded pre-K programs accounted for. Label the vertical axis “Interest rate” and the horizontal axis “Quantity of loanable funds.” Label the equilibrium point (e1) and the equilibrium interest rate (r1). b) Now draw a new diagram with the cost of the expanded pre-K programs included in the analysis. Shift the demand curve in the appropriate direction. Label the new equilibrium point (E2) and the new equilibrium interest rate (r2). c) How does the equilibrium interest rate change in response to government expenditure on the expanded pre-K programs? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
100%
Textbook:
Congress estimated that the cost of increasing support and expanding pre-kindergarten education and infant and toddler childcare would cost $28 billion in 2014. Since the U.S. government was running a budget deficit at the time, assume that the new pre-K funding was financed by the government borrowing, which increases the
- a) Draw typical demand (D1) and supply (S1) curves for loanable funds without the cost of the expanded pre-K programs accounted for. Label the vertical axis “Interest rate” and the horizontal axis “Quantity of loanable funds.” Label the equilibrium point (e1) and the equilibrium interest rate (r1).
- b) Now draw a new diagram with the cost of the expanded pre-K programs included in the analysis. Shift the demand curve in the appropriate direction. Label the new equilibrium point (E2) and the new equilibrium interest rate (r2).
- c) How does the equilibrium interest rate change in response to government expenditure on the expanded pre-K programs? Explain.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education