GraphInterestRateFigure 2 Saving Incentives Increase the Supply of Loanable FundsA change in the tax laws to encourage Americans to save more would shift the supply of loanable funds to the right from S₁to S₂. As a result, the equilibrium interest rate would fall, and the lower interest rate would stimulate investment. Here theequilibrium interest rate falls from 5 percent to 4 percent, and the equilibrium quantity of loanable funds saved and investedrises from $1,200 billion to $1, 600 billion.5%4%2.... whichreduces theequilibriuminterest rate...See graph built step by step0$1,200Supply, S₁$1,6003.... and raises the equilibriumquantity of loanable funds.5₂1. Tax incentives forsaving increase thesupply of loanablefunds...DemandBuild graph yourselfLoanable Funds(in billions of dollars) Draw the supply and demand curves in the market for loanable funds. Find the initial equilibrium, and label it E₁.Suppose there is a change in the tax laws which discourages Americans from saving. Draw the change in supply, and labelthe new equilibrium E₂. Show the change in the equilibrium interest rate and quantity of loanable funds as a result of thissaving disincentive.

The supply curve of loanable funds depicts the positive relationship between interest rate and…

Draw the supply and demand curves in the market for loanable funds. Find the initial equilibrium, and label it E₁. Suppose there is a change in the tax laws which discourages Americans from saving. Draw the change in supply, and label the new equilibrium E2. Show the change in the equilibrium interest rate and quantity of loanable funds as a result of this saving disincentive.

Draw the supply and demand curves in the market for loanable funds. Find the initial equilibrium, and label it E₁. Suppose there is a change in the tax laws which discourages Americans from saving. Draw the change in supply, and label the new equilibrium E2. Show the change in the equilibrium interest rate and quantity of loanable funds as a result of this saving disincentive.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Similar questions

Most Australians are found to be frugal during the coronavirus pandemic and have started saving more. Explain how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.
If the demand for loanable funds by the business sector decreases because of a recession and the demand for loanable funds by government increases by an amount greater than the decreased demand. How is the equilibrium interest rate affected? Use diagram to show the change.
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