Scenario 1: Individual Retirement Accounts (IRAS) allow workers to shelter a portion of their income from taxation. Suppose the maximum annual contribution to accounts of this type is $6,000 per person. Now suppose there is a decrease in the maximum contribution, from $6,000 to $4,000 per year. 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 the level of investment spending to Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to This change in spending causes the government to run a budget Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. Shift the appropriate curve on the graph to reflect this change. and the level of investment to This causes the interest rate to which and the level of investment spending. national saving.
Scenario 1: Individual Retirement Accounts (IRAS) allow workers to shelter a portion of their income from taxation. Suppose the maximum annual contribution to accounts of this type is $6,000 per person. Now suppose there is a decrease in the maximum contribution, from $6,000 to $4,000 per year. 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 the level of investment spending to Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to This change in spending causes the government to run a budget Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. Shift the appropriate curve on the graph to reflect this change. and the level of investment to This causes the interest rate to which and the level of investment spending. national saving.
Economics Today and Tomorrow, Student Edition
1st Edition
ISBN:9780078747663
Author:McGraw-Hill
Publisher:McGraw-Hill
Chapter16: Government Spends, Collects, And Owes
Section: Chapter Questions
Problem 8AA
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Transcribed Image Text:Scenario 1: Individual Retirement Accounts (IRAS) allow workers to shelter a portion of their income from taxation. Suppose the maximum annual
contribution to accounts of this type is $6,000 per person. Now suppose there is a decrease in the maximum contribution, from $6,000 to $4,000 per
year.
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
the level of investment spending to
Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose
the government repeals a previously existing investment tax credit.
Shift the appropriate curve on the graph to reflect this change.
The repeal of the previously existing tax credit causes the interest rate to
This change in spending causes the government to run a budget
Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing
taxes.
Shift the appropriate curve on the graph to reflect this change.
and the level of investment to
This causes the interest rate to
which
and
the level of investment spending.
national saving.
Transcribed Image Text:INTEREST RATE (Percent)
Supply
LOANABLE FUNDS (Billions of dollars)
Demand
Demand
Supply
?
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