Note:-Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism.Answer completely.You will get up vote for sure. 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) ofloanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the financial industry is close tobankruptcy and the U.S. government decides to implement a bailout plan of several billion dollars without increasing taxes, causing 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 RATELOANABLE FUNDSSDDS? Based on this model, the budget deficit leads toBudget deficits crowd out private investment.Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply.Budget deficits decrease national saving.in the level of investment andBudget deficits increase national saving.in the interest rate.A decrease in spending today, such as funding cuts in education, may hurt future generations more.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 6%. If the inflation rate is 3% per year, this means that nominalincome must be growing at a rate of% per year. Because nominal income grows over time, the nation's ability to pay back the national debtalso rises. Therefore, as long as the nation's income growsthan the government debt, the level of debt can continue to increase withoutharming the economy. In this case, the nominal government debt can rise by% each year without increasing the debt-to-income ratio.

Macroeconomic analysis provides a comprehensive picture of the financial status of an economy. It…

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 financial industry is close to bankruptcy and the U.S. government decides to implement a bailout plan of several billion dollars without increasing taxes, causing 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 S D D ܘ S

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 financial industry is close to bankruptcy and the U.S. government decides to implement a bailout plan of several billion dollars without increasing taxes, causing 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 S D D ܘ S

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter13: Federal Deficits, Surpluses, And The National Debt

Section: Chapter Questions

Problem 13SQ

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The table shows an economy's demand for loanable funds and supply of loanable funds schedules when the government's budget is balanced. The quantity of loanable funds demanded increases by $2.0 trillion at each real interest rate and the quantity of loanable funds supplied increases by $1.0 trillion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 trillion, what are the real interest rate, the quantity of loanable funds, investment, and saving? >>> Answer to 1 decimal place. Real interest rate (percent per year) Loanable funds Loanable funds demanded supplied (trillions of 2012 dollars per year) 4 7.5 6.5 5 7.0 7.0 6 6.5 7.5 7 6.0 8.0 8 5.5 8.5 9 5.0 9.0 10 4.5 9.5 The real interest rate is 7 percent a year. The quantity of loanable funds is $ trillion, investment is $ trillion, and saving is $ trillion.
Explain how government borrowing affect interest rate in the market. What impact such change in interest rate could have on the economy?
Textbook: Macroeconomics by P. Krugman & R. Wells (5th Edition) Congress estimated that the cost of increasing support and expanding pre-kindergarten education and infant and toddler childcare would cost $28 billion in 2014. Since the U.S. government was running a budget deficit at the time, assume that the new pre-K funding was financed by the government borrowing, which increases the demand for loanable funds without affecting supply. This question considers the likely effect of this government expenditure on the interest rate. a) Draw typical demand (D1) and supply (S1) curves for loanable funds without the cost of the expanded pre-K programs accounted for. Label the vertical axis “Interest rate” and the horizontal axis “Quantity of loanable funds.” Label the equilibrium point (e1) and the equilibrium interest rate (r1). b) Now draw a new diagram with the cost of the expanded pre-K programs included in the analysis. Shift the demand curve in the appropriate direction. Label the…
Adjust the graph to show how a $25.8 billion dollar increase in the government's budget deficit affects the hypothetical loanable funds market below, holding all else equal. Market for Loanable Funds Select the answer that describes the adjustment in the loanable funds market. O The deficit decreases the demand for loanable funds and shifts the demand curve to the left; decreasing the interest rate and crowding out investment spending. O The deficit decreases national savings and shifts the supply curve to the left; increasing the interest rate and crowding out investment spending. O The deficit increases the demand for loanable funds and shifts the demand curve to the right; increasing the interest rate and crowding out investment spending. O The deficit increases national savings and shifts the supply curve to the right; decreasing the interest rate and crowding out investment spending. D Quantity of loanable funds (billions of $) Interest rate
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $250 billion per year. Draw a graph to show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interest due to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds.
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The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place. The real interest rate is C ... percent a year. Investment is $ billion. There crowding out in this situation because O A. is; OB. is no; the deficit increases the real interest rate, which decreases investment investment is $6.5 billion. Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds supplied demanded (billions of 2007 dollars) 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.5 5.0 5.5 6.0 6.5 7.0 7.5
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. d) How does the elasticity of demand for loanable funds affect the size of these changes? Hint: Use a diagram to illustrate. e) Suppose households believe that smaller government borrowing today implies ower taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the affects you discussed in parts (a) and (b)?
Suppose the federal government runs a surplus and the Federal Reserve purchases bonds from banks with the excess funds. Please use the graph to show what happens to the federal government's supply of loanable funds
The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place The real interest rate is Investment is $ billion. There OA. is, HI percent a year crowding out in this situation because OB. is no the deficit increases the real interest rate, which decreases investment investment is $7.0 billion Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds demanded supplied (billions of 2007 dollars) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 5.0 5.5 6.0 6.5 7.0 7.5 8.0
In the graph you've just made, what is the level of private saving when the government has a $1 trillion budget deficit? A. $2.5 trillion B. $2.0 trillion C. $1.5 trillion Thanks! Screenshot attached
The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumerswill be affected if the budget deficit increases to $250 billion per year. Draw a graph to show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interestdue to the increase in budget deficit, show the impact of the increase in the budgetdeficit on the market for loanable funds. c. How would your conclusion differ if taxpayers fully anticipate future tax increases tooffset the increase in the budget deficit? d. Do you think the Ricardian Equivalence is realistic?