The graph on the right shows the economy's credit market in equilibrium.Using this graph, illustrate how the equilibrium real interest rate and theequilibrium quantity of credit would change if the following event occurs.Congress agrees to a reduction in the federal deficit, which involves a significantdecrease in the amount of government borrowing.On Graph 1:1.) Using the line drawing tool, determine the effect on the equilibrium real interestrate and the equilibrium quantity of credit. Label your curve(s) appropriately.Carefully follow the instructions above and only draw the required object(s).Real interest rate (r)r²Graph 1Q*S2CreditsupplycurveCreditdemandcurveQuantity of credit D. Households expect an economic downturn ahead.Japan has been observing a demographic trend of rapid aging. More and morehouseholds are approaching the age of retirement which is affecting their savingrate, which in turn is affecting the credit supply in the economy. Suppose theJapanese government now decides to increase taxes on profits. This affects thecredit demand in the economy.The adjacent diagram shows the initial equilibrium in the Japanese economy withCD₁ and CS₁ depicting the initial credit demand and the initial credit supplycurves respectively.Assume that the credit demand and the credit supply curves shift by equalamounts, i.e., by the same vertical distance.Using the line drawing tool, draw the new credit supply and credit demand curvesin the economy and label them accordingly.Carefully follow the instructions above and only draw the required objects.The new real interest rate is the same asThe new quantity of credit is lower thanits initial equilibrium level.its initial equilibrium level.Credit market equilibrium in the JapaneseeconomyReal interest rate0CS2CD₂Q1Quantity of creditCS1CD1e

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the right shows the economy's credit market in equilibrium. Using this graph, illustrate how the equilibrium real interest rate and the equilibrium quantity of credit would change if the following event occurs. Congress agrees to a reduction in the federal deficit, which involves a significant decrease in the amount of government borrowing. On Graph 1: 1.) Using the line drawing tool, determine the effect on the equilibrium real interest rate and the equilibrium quantity of credit. Label your curve(s) appropriately. Carefully follow the instructions above and only draw the required object(s). Real interest rate (r) S2 + Credit supply curve Credit deman curve

the right shows the economy's credit market in equilibrium. Using this graph, illustrate how the equilibrium real interest rate and the equilibrium quantity of credit would change if the following event occurs. Congress agrees to a reduction in the federal deficit, which involves a significant decrease in the amount of government borrowing. On Graph 1: 1.) Using the line drawing tool, determine the effect on the equilibrium real interest rate and the equilibrium quantity of credit. Label your curve(s) appropriately. Carefully follow the instructions above and only draw the required object(s). Real interest rate (r) S2 + Credit supply curve Credit deman curve

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 9P

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