(Figure: Loanable Funds) Look at the figure Loanable Funds. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $75 billion? O Capital inflows from foreign citizens decline. The federal government runs a budget deficit rather than a surplus. O Profit expectations for business investments become less optimistic. O The government eliminates taxes on income from interest earned.

(Figure: Loanable Funds) Look at the figure Loanable Funds. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $75 billion? O Capital inflows from foreign citizens decline. The federal government runs a budget deficit rather than a surplus. O Profit expectations for business investments become less optimistic. O The government eliminates taxes on income from interest earned.

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 loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) Supply LOANABLE FUNDS (Billions of doll Demand -0- Demand 10 Supply
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…
During the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would shift: a. the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right. b. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right. c. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left. d. the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left.
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.
4. Suppose gross saving in the United States is 20 percent of Gross National Product (GNP). a. If business saving is 15 percent of GNP and government saving is 4 percent of GNP, what percent of GNP is personal saving?b. Explain why a federal budget surplus increases national saving while a budget deficit decreases national saving.c. How can a federal budget deficit increase market equilibrium interest rates and reduce private investment and future economic growth?
9. Problems and Applications Q9 Investment can be increased both by reducing taxes on private saving and by reducing the government budget deficit. True or False: It is possible to implement both of these policies at the same time because reducing taxes on private spending has the effect of decreasing the government budget deficit. O True False What would you need to know in order to judge which of these two policies would be more effective way to raise investment? Check all that apply. ✓ The elasticity of private saving with respect to the after-tax real interest rate The responsiveness of private saving to increases in investment ✔The response of private saving to changes in the government budget deficit
4. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. INTEREST RATE (Percent) 10 9 1 0 0 Supply Demand 100 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions 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 4.5%. Based on the previous graph, quantity of loanable funds supplied is demanded, resulting in a of loanable funds. This would encourage lenders to the quantity of loanable funds supplied and the equilibrium interest rate of % than the quantity of loans the interest rates they charge, thereby the quantity of loanable funds demanded, moving the market toward
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6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. INTEREST RATE LOANABLE FUNDS S 6.4. (?)
Which group is most likely to demand funds from the financial (loanable funds) market? O financial institutions who lend funds to people. O the government when they run a budget surplus. O firms who want to borrow to pay for new capital. O people who have extra income they want to save. « Previous Next ASUS 16 5 6 7 R
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.) INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand Supply (?) 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 a decrease in the maximum contribution, from $5,000 to $3,000 per year.