National Income: Where It Comes From and Where It Goes — End of Chapter ProblemIf consumption depends on the interest rate, saving will also depend on it. In particular, the higher the interest rate, the greater will be the return to saving. Hence, the supply of loanable funds will be represented by an upward-sloping, rather than a vertical, curve.National saving is the sum of public saving and private saving. Investment in this analysis is private investment. It does not include public investment. b. The new equilibrium interest rate isc. Investment at the new equilibrium isd. If consumption were not affected by the interest rate, crowding out would have resulted in private investment of$14 billion$12 billion$8 billion$10 billion$6 billionplies that the more responsive is consumption and thus saving to changes in the interest rate, theill be the crowding out effect. a. Assume that the government borrows $4 billion to pay for its increased purchases. Adjust the graph below to reflect thischange. Be sure to indicate the new market equilibrium.Interest Rate (percent)109874321002Market for Loanable Funds46 8 10 12 14Loanable Funds (in billions of dollars)16National saving, S(r)Investment, I(r)18 20

The market for loanable funds is a theoretical framework in economics that analyzes the interaction…

Answered: National Income: Where It Comes From…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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National Income: Where It Comes From and Where It Goes — End of Chapter Problem

If consumption depends on the interest rate, saving will also depend on it. In particular, the higher the interest rate, the greater will be the return to saving. Hence, the supply of loanable funds will be represented by an upward-sloping, rather than a vertical, curve.

National saving is the sum of public saving and private saving. Investment in this analysis is private investment. It does not include public investment.

b. The new equilibrium interest rate is
c. Investment at the new equilibrium is
d. If consumption were not affected by the interest rate, crowding out would have resulted in private investment of
$14 billion
$12 billion
$8 billion
$10 billion
$6 billion
plies that the more responsive is consumption and thus saving to changes in the interest rate, the
ill be the crowding out effect.

a. Assume that the government borrows $4 billion to pay for its increased purchases. Adjust the graph below to reflect this
change. Be sure to indicate the new market equilibrium.
Interest Rate (percent)
10
9
8
7
4
3
2
1
0
0
2
Market for Loanable Funds
4
6 8 10 12 14
Loanable Funds (in billions of dollars)
16
National saving, S(r)
Investment, I(r)
18 20

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