UNIT 4-BU204 - MACROECONOMICS (Enter response here.) 2. The following formulas are very important in macroeconomics: 1) Y=C+1+G+EX-IM 2)S=(Y-T-C)+(T – G) a. Identify the components of each formula. (Enter response here.) b. Explain the relationship between the two formulas. (Enter response here.) UNIT 4 - BU204 - MACROECONOMICS of money saved, 2) interest rates, and 3) additional business investment. For all scenarios, assume that there are no external controls on interest rates. D1 16% n t ° M 12% r a • t 8% S1 3. Explain how changes in interest rates will affect the amount of money that people save. 4% S1 $150 $300 $450 D1 $600 (Enter response here.) 4. Explain how changes in interest rates and rates of retum on various investment options will affect the amount of money that businesses are willing to invest to increase output. (Enter response here.) 5. Explain how government tax revenue and govemment spending create either a budget surplus budget deficit. How does that difference affect the market for loanable funds? or Quantity of Loanable Funds (in millions) Description: A graph showing the supply, in a red straight line rising to the right, and demand, in a straight blue line descending to the right, for loanable funds with the market interest rates on the vertical axis and money available on the horizontal axis. Initial equilibrium is at 8% interest rate and 300 million dollars. a. The government significantly increases its borrowing to fund its growing deficit. (Enter response here.) b. At any given interest rate, a significant number of middle-class consumers decide to use their credit cards to fund additional purchases. Assume no change in government borrowing. (Enter response here.) 6. Use the market for loanable funds shown in the accompanying diagram to answer the following questions for each of the three scenarios: What will the likely results be on: 1) quantity (Enter response here.) c. At any given interest rate, many major businesses become pessimistic about the future profitability of investment spending. Assume no change in govemment borrowing.