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 an increase in the maximum contribution, from $5,000 to $8,000 per year. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to 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. The implementation of the new tax credit causes the interest rate to and the level of investment to 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 causes the interest rate to

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 an increase in the maximum contribution, from $5,000 to $8,000 per year. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to 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. The implementation of the new tax credit causes the interest rate to and the level of investment to 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 causes the interest rate to

Microeconomics

13th Edition

ISBN:9781337617406

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter16: Interest, Rent, And Profit

Section: Chapter Questions

Problem 3QP

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Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students' investment projects: Return Student (Percent) Antonio 4 Dmitri Frances 15 Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Money a Year Later Student (Dollars) Antonio Dmitri Frances
8- Describe how the following statements affect either the supply or the demand for loanable funds. For each statement below, do the following: Explain whether the event affects either the demand or the supply of loanable funds. Describe how the statement will affect the equilibrium interest rate and quantity of loanable funds. Draw a graph to demonstrate each answer. Please remember to label each part of the graph. Indicate the change in the interest rate and the quantity of loanable funds on your graph. Analyze each event independently. (Hint: Review the slides and recordings of Lecture 4 for similar graphical analysis). Statements: a) "The national-level saving rate is important from a macroeconomic perspective, in the sense that higher savings tend to strengthen the economy over the long run." b) “Slow-trend growth is reducing the opportunities for profitable long-term investments. The recent downturn in business investment was less of a cyclical blip than a sign of things to…
Draw a graph depicting interest rates at the quantity of loanable funds. Answer the following questions regarding this graph. Explain why the supply of loanable funds is upward sloping. Explain why the demand of loanable funds is downward sloping. If the Federal Reserve sells government bonds, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable funds. If the Federal Reserve lowers the required reserve rate, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable funds.
Use the loanable funds market to illustrate the effect of the following events on the equilibrium. Illustrate the effects on the interest rate and quantity of investment-savings a) The proportion of retired people in the population goes up. Think that usually retired people generally save less than working people at any interest rate. 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 investment spending (assume the budget balance is zero).
Jse ule following graph to show the effects on the Market for Loanable Funds of many people deciding to play the lottery rather than save money for retirement: Instructions: Drag the supply curve to illustrate the appropriate change in supply. Market for Loanable Funds Interest Rate 100 90 Supply (Savings) 80 70 60 50 40 Demand (Investment) 30 20 10 10 20 30 40 50 60 70 80 90 100 Dollar volume of Savings, Investment
Investment — End of Chapter Problem Move the appropriate curve or curves in each graph to illustrate the effect of each of the four events on the market for loanable funds. If the event should not impact the market for loanable funds, then leave the graph unchanged.
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.)
Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds. Loanable funds Demand Interest rate Supply
Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds.
Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.
Hide Assignment Information Instructions The table below is broken down by Month, Real Interest Rate (%), Loanable Funds (trillions of $), Exogenous Change, Equilibria (increases, decreases, or no change. Use the data table to determine the equilibrium real interest rate after certain factors change: Month Real Interest Rate (%) Loanable Funds (trillions of $) Exogenous Change Equilibria (increases, decreases, or no change) January 3% 3 no change no change April 3% 4 increased fund supply ? July 4% 2 decreased fund supply ? December 3% 3 increased fund demand ?
Consider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to provide incentives on savings by allowing people to shield their savings by opening Retirement Accounts with commercial banks. What is the effect of this policy on the market for loanable finds Interest rate will (Please write one word either increase or decrease ) Quantity of loanable funds will(Please write one word either increase or decrease) Now assume, the parliament passed a tax reform aimed at making investment more attractive—for instance, by instituting an investment tax credit. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new piece of equipment What is the effect of this policy on the market for loanable finds Interest rate will (Please write one word either increase or decrease) Quantity of loanable funds will((Please write one word either increase or decrease)