The 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)SupplyLOANABLE FUNDS (Billions of dollars)DemandDemand1Supply Scenario 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 a decrease in the maximum contribution, from $6,000 to $4,000 peryear.Shift the appropriate curve on the graph to reflect this change.This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds tolevel of investment spending toScenario 2: An Investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Supposethe government repeals a previously existing investment tax credit.Shift the appropriate curve on the graph to reflect this change.The repeal of the previously existing tax credit causes the interest rate toThis change in spending causes the government to run a budget,and the level of saving toScenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changingtaxes.Shift the appropriate curve on the graph to reflect this change.This causes the interest rate towhichand thethe level of investment spending.national saving.

Loanable funds market, is the market where funds are being borrowed and lent.Lending of funds is…

The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the 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.) TEREST RATE (Percent) Supply Demand Demand 1 Supply

The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the 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.) TEREST RATE (Percent) Supply Demand Demand 1 Supply

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The following graph shows the market for loanable funds. For each of the glven scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each. individual scenarlo. (Note: You will not be graded on any changes you make to the graph.) Demand Supply Supply Demand LOANABLE FUNDS (Billions of dollars) INTEREST RATE (Percent)
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