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The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the U.S. government bails out several large automotive manufacturers experiencing financial difficulties without a rise in taxes, creating a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. ?

The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the U.S. government bails out several large automotive manufacturers experiencing financial difficulties without a rise in taxes, creating a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. ?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
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The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the U.S. government bails out several large automotive manufacturers experiencing financial difficulties without a rise in taxes, creating a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS 52 S₁ D D S ? Based on this model, the budget deficit leads to a decrease in the level of investment and an increase in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply.
Transcribed Image Text:The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the U.S. government bails out several large automotive manufacturers experiencing financial difficulties without a rise in taxes, creating a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS 52 S₁ D D S ? Based on this model, the budget deficit leads to a decrease in the level of investment and an increase in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply.
LOANABLE FUNDS Based on this model, the budget deficit leads to a decrease D Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. Budget deficits increase national saving. A decrease in spending today, such as funding cuts in education, may hurt future generations more. Budget deficits decrease national saving. in the level of investment and an increase in the interest rate. Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 4%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of 7% per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows faster than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by 7% each year without increasing the debt-to-income ratio.
Transcribed Image Text:LOANABLE FUNDS Based on this model, the budget deficit leads to a decrease D Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. Budget deficits increase national saving. A decrease in spending today, such as funding cuts in education, may hurt future generations more. Budget deficits decrease national saving. in the level of investment and an increase in the interest rate. Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 4%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of 7% per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows faster than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by 7% each year without increasing the debt-to-income ratio.
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