Suppose the government borrows $20 billion more next year than this year. The following graph shows the market for loanable funds before the additional borrowing for next year. Use the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more next year than this year. Interest Rate (Percent) 2 1 10 Demand Supply 9 8 7 0 0 10 20 30 40 50 70 80 Loanable Funds (Billions of dollars) 50 60 90 100 New Supply As a result of this policy, the equilibrium interest rate Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. Public saving decreases by exactly $20 billion. Investment increases by less than $20 billion. National saving decreases by less than $20 billion. Private saving increases by less than $20 billion. The more elastic the supply of loanable funds, the is the change in national saving as a result of the increase in government borrowing. The increase in government borrowing would result in a smaller change in the interest rate if the demand for loanable funds is elastic. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. This belief would cause people to save ▾ today, which would would private saving and the effect of the reduction in public saving on the market for loanable funds. the supply of loanable funds. This
Suppose the government borrows $20 billion more next year than this year. The following graph shows the market for loanable funds before the additional borrowing for next year. Use the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more next year than this year. Interest Rate (Percent) 2 1 10 Demand Supply 9 8 7 0 0 10 20 30 40 50 70 80 Loanable Funds (Billions of dollars) 50 60 90 100 New Supply As a result of this policy, the equilibrium interest rate Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. Public saving decreases by exactly $20 billion. Investment increases by less than $20 billion. National saving decreases by less than $20 billion. Private saving increases by less than $20 billion. The more elastic the supply of loanable funds, the is the change in national saving as a result of the increase in government borrowing. The increase in government borrowing would result in a smaller change in the interest rate if the demand for loanable funds is elastic. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. This belief would cause people to save ▾ today, which would would private saving and the effect of the reduction in public saving on the market for loanable funds. the supply of loanable funds. This
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter18: Savings,investment And The Financial System
Section: Chapter Questions
Problem 8PA
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Transcribed Image Text:Suppose the government borrows $20 billion more next year than this year.
The following graph shows the market for loanable funds before the additional borrowing for next year.
Use the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more next
year than this year.
Interest Rate (Percent)
2
1
10
Demand
Supply
9
8
7
0
0
10
20 30 40 50
70 80
Loanable Funds (Billions of dollars)
50
60
90
100
New Supply
As a result of this policy, the equilibrium interest rate
Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply.
Public saving decreases by exactly $20 billion.
Investment increases by less than $20 billion.
National saving decreases by less than $20 billion.
Private saving increases by less than $20 billion.
The more elastic the supply of loanable funds, the
is the change in national saving as a result of the increase in government borrowing.
The increase in government borrowing would result in a smaller change in the interest rate if the demand for loanable funds is
elastic.
Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future.
This belief would cause people to save ▾ today, which would
would
private saving and
the effect of the reduction in public saving on the market for loanable funds.
the supply of loanable funds. This
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