Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Supposethe 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 toScenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defensespending without changing taxes.This change in spending causes the government to run a budgetShift the appropriate curve on the graph to reflect this change.and the level of investment toThis causes the interest rate towhichthe level of investment spending.national saving. 5. The market for loanable funds and government policyThe following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you completethe 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)year.||SupplyDemandLOANABLE FUNDS (Billions of dollars)DemandScenario 1: Individual Retirement Accounts (IRAS) allow workers to shelter a portion of their income from taxation. Suppose the maximum annualcontribution to accounts of this type is $6,000 per person. Now suppose there is an increase in the maximum contribution, from $6,000 to $9,000 perShift the appropriate curve on the graph to reflect this change.SupplyThis change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds tospending toand the level of investment

The demand for and supply of funds that are loanable determine the market equilibrium for loanable…

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 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 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 Shift the appropriate curve on the graph to reflect this change. and the level of investment to This causes the interest rate to which the level of investment spending. national saving.

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 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 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 Shift the appropriate curve on the graph to reflect this change. and the level of investment to This causes the interest rate to which the level of investment spending. 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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