**Graph Description: Loanable Funds Market**The graph depicts the loanable funds market with supply and demand curves. The x-axis represents "Loanable Funds" measured in billions of dollars, while the y-axis shows the "Interest Rate" in percent.- **Supply Curve**: The upward sloping line marked "Supply" indicates that as the interest rate increases, the quantity of loanable funds supplied increases.- **Demand Curve**: The downward sloping line marked "Demand" suggests that as the interest rate decreases, the quantity of loanable funds demanded increases.- **Equilibrium**: The intersection of the supply and demand curves marks the equilibrium interest rate and quantity of loanable funds.**Scenario 1 Explanation**Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%.The increase in the tax rate would likely affect the supply of loanable funds, as the after-tax return on savings decreases, potentially shifting the supply curve to the left. This shift could lead to a higher equilibrium interest rate and a lower quantity of loanable funds. **Scenario 1:**Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is an increase in the tax rate on interest income, from 20% to 25%.*Shift the appropriate curve on the graph to reflect this change.*This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to __________ and the level of investment spending to __________.**Scenario 2:**An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit.*Shift the appropriate curve on the graph to reflect this change.*The implementation of the new tax credit causes the interest rate to __________ and the level of investment to __________.**Scenario 3:**Initially, the government’s budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes.This change in spending causes the government to run a budget __________, which __________ national saving.*Shift the appropriate curve on the graph to reflect this change.*This causes the interest rate to __________ and __________ the level of investment spending.**Graph/Diagram Explanation:**No specific graphs or diagrams are provided in the image; however, the scenarios suggest adjustments to supply and demand curves in the market for loanable funds to reflect changes due to tax policy and government spending.

Scenario 1: Initially, interest income or deposits will be taxed at 20%. Now the tax rate on…

he appropriate curve on the graph to reflect this change. nange in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to rio 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppo nment implements a new investment tax credit. the appropriate curve on the graph to reflect this change. mplementation of the new tax credit causes the interest rate to and the level of investment to ario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing ding without changing taxes. change in spending causes the government to run a budget v, which ▼ national saving.

he appropriate curve on the graph to reflect this change. nange in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to rio 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppo nment implements a new investment tax credit. the appropriate curve on the graph to reflect this change. mplementation of the new tax credit causes the interest rate to and the level of investment to ario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing ding without changing taxes. change in spending causes the government to run a budget v, which ▼ national saving.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concerning the government budget constraint and the impact of cutting taxes on investment - if the government cuts taxes and funds this tax cut by cutting government spending in the same period is it right to say that government saving doesn't change but private saving will as consumers will receive this permanent tax cut - thereby increasing the income flow increasing consumption.
Please see attachment Answer neatly Show all your work. Based on the above diagram: 1. Calculate MPC? 2. If Private Investment increases by 100, calculate the new level of NI. 3. If full-employment NI is at 3000, by how much should Government spending change? 4. What is the new NI, If 1/2 of those government expenditures are financed through taxes?
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