Principles of Macroeconomics, Loose-Leaf Version
8th Edition
ISBN: 9781337096881
Author: Mankiw, N. Gregory
Publisher: South-Western College Pub
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Question
Chapter 13, Problem 5QR
To determine
The impact of change in tax code on private savings and loanable fund market for loanable funds.
Expert Solution & Answer
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How does an increase in government borrowing affect the equilibrium interest rate in the market for loanable funds?
What impact does the government have in the loanable funds market?
Forces that change the demand for investment in turn impact the demand for loanable funds. These forces include the change of government policies
The table below shows Demand and Supply for loanable fund at given time.
Real interest rate
Quantity of loanable fund demanded (billion $)
Quantity of loanable fund supplied (billion $)
0.01
1000
400
0.02
950
450
0.03
900
500
0.04
850
550
0.05
800
600
0.06
750
650
0.07
700
700
0.08
650
750
0.09
600
800
0.10
550
850
0.11
500
900
0.12
450
950
0.13
400
1000
0.14
350
1050
0.15
300
1100
Instructions:
Using excel, find the equilibrium real interest rate and quantity of loanable fund.
show the equilibrium on a graph.
If this country experiences a recession business cycle phase that decreases the demand for loanable fund by $200 billion.
Find the new equilibrium real interest rate and quantity of loanable fund.
Show the shift on the graph.
list Two factors that shift SLF rightward and two factors that shift DLF rightward
What is the meaning of crowding out?…
Chapter 13 Solutions
Principles of Macroeconomics, Loose-Leaf Version
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Similar questions
- The European Union sold 225 billion euros of green bonds as part of its pandemic recovery fund. How would this bond's issuance affect the equilibrium in the market for loanable funds?arrow_forwardName and explain on the example of your interest one factor that caused the shift of the supply for loanable funds? Draw the curve that supports it.arrow_forwardThe stock market during 1998 and the first half of 1999 showed substantial strength. If the strong returns are expected to continue, how would this affect the supply of loanable funds?arrow_forward
- What happens to the market for loanable funds when interest rates increase? Planned investments increase. Planned investments is not effected There is a decrease in demand for loanable funds. There is a decrease in quantity demanded for loanable funds.arrow_forwardThink about factors that may shift the demand for loanable funds. Sort the following scenarios into one of three possibilities: (i) Demand increases, (ii) Demand decreases, or (iii) Demand does not change. Items (5 items) (Drag and drop into the appropriate area below) Expected returns from capital investment increase Categories Government borrowing falls. Demand increases Drag and drop here Interest rates rise. Firms become more optimistic about the future. Demand decreases Drag and drop here Household incomes rise. No change in demand Drag and drop herearrow_forwardWhat happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens?arrow_forward
- What impact will increases in Time Preferences have on the Market for Loanable Funds? A) Increase Supply B) Decrease Supply C) Decrease Demand D) Increase Demandarrow_forwardWhen wealth increases, the supply of loanable funds demanded for loanable funds decreases; increases increases; decreases increases; increases decreases; decreases and the quantityarrow_forwardLoanable fund graph- show the result of a fiscal, crowding out and the effect on the supply of loanable fundsarrow_forward
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