Suppose the government has a budget surplus of $50 billion more next year than thisyear.a) Use a supply-and-demand diagram to analyze this policy. Does the interest raterise or fall?b) What happens to investment, private saving, public saving, and national saving?Hint: Use diagram or equation to illustrate.c) How does the elasticity of supply of loanable funds affect the size of thesechanges? Hint: Use a diagram to illustrate.d) How does the elasticity of demand for loanable funds affect the size of thesechanges? Hint: Use a diagram to illustrate.e) Suppose households believe that smaller government borrowing today impliesower taxes to pay off the government debt in the future. What does this beliefdo to private saving and the supply of loanable funds today? Does it increase ordecrease the affects you discussed in parts (a) and (b)?

When the revenue from tax tends to be greater than the spending of the government, a budget surplus…

Suppose the government has a budget surplus of $50 billion more next year than this year. a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b) What happens to investment, private saving, public saving, and national saving? Hint: Use diagram or equation to illustrate. c) How does the elasticity of supply of loanable funds affect the size of these changes? Hint: Use a diagram to illustrate!

Suppose the government has a budget surplus of $50 billion more next year than this year. a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b) What happens to investment, private saving, public saving, and national saving? Hint: Use diagram or equation to illustrate. c) How does the elasticity of supply of loanable funds affect the size of these changes? Hint: Use a diagram to illustrate!

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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