Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 3IAPA
To determine
To find:
The years in which wealth was more than saving, the years in which savings was more than wealth and the way change in wealth is different from change in savings.
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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.)
14
INTEREST RATE (Percent)
Demand
Supply
LOANABLE FUNDS (Billions of dollars)
Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits
is taxed at a rate of 18%. Now suppose there is a decrease in the tax rate on interest income, from 18% to 14%.
Shift the appropriate curve on the graph to reflect this change.
Demand
Shift the appropriate curve on the graph to reflect this change.
This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment
spending…
1. How does the U.S. savings rate compare to that of another country?
2. How is the U.S. doing?
3. What does the Bible say about saving and/or investing? According to Prov. 13:22, Prov. 22:7, Rom. 13:8, Matt. 25:14-30, and Luke 19:12-26.
How do the sophisticated financial systems of modern economies affect the relationship between saving and investment?
Chapter 26 Solutions
Foundations of Economics (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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- Problem 1: Identify each of the following acts as representing either saving or investment. a. Lan uses some of his income to buy government bonds. b. Minh takes some of his income and buys mutual funds. c. Linh purchases a new truck for his delivery business using borrowed funds. d. Peter uses some of his income to buy stock in a major corporation, e. Dave hires a builder to construct a new home using borrowed funds.arrow_forwardEXERCISE 10.9 LIMITS ON LENDING Many countries have policies that limit how much interest a moneylender can charge on a loan. Do you think these limits are a good idea? Who benefits from the laws and who loses? What are likely to be the long-term effects of such laws? Tips: For Question 2, you may think about how a low interest rate would affect the poor and those who owe huge debts. For Question 3, you may think about how it would affect the profitability of the banking sector and the supply of lending (will lenders be encouraged to lend more?), and what implications it may have for "credit rationing" (being credit constrained).arrow_forward4.4 how am i supposed to show this, are there going to be two lines crossing over eachother?arrow_forward
- Briefly discuss THREE economic policies that encourages household savings.arrow_forwardPlease answer everything in the photos.arrow_forwardThe importance of income in determining savings has persisted since the time of Keynes. Why have other theories failed to displace income as the most critical variable in saving theory?arrow_forward
- Chairman Latrobe, the Supreme Leader of Rolling Rock decided to increase the personal tax rate to fund the defense force. 8) How may this affect the loanable funds market? Explain by describing the change in the demand for, or the supply of, loanable funds. 9) Because of the change decreed by President Thug and your answer to question 8, what is likely to happen to the interest rate and the quantity of funds in the loanable funds market? 10) How will each of these Rolling Rockers feel about President Thug’s decision? (A) Investor Confidence (B) The President of Rolling Rock National Bankarrow_forwardBased on Abel, Bernanke and Croushore, 10th edition, Chapter 4, Numerical Problems No. 1. A consumer is making saving plans for this year and next. She knows her real income after taxes will be $50,000 in both years. Any part of her income saved this year will earn a real interest rate of 10% between this year and next year. Currently, the consumer has no wealth (no money in the bank or other financial assets, and no debts). There is no uncertainty about the future. a) Formally derive the consumer’s intertemporal budget constraint. b) Using the given numerical values rewrite and graph the budget line. c) Find the consumer’s PVLR. The consumer wants to save an amount this year that will allow her to (1) make college tuition payments next year equal to $16,800 in real terms; (2) enjoy exactly the same amount of consumption this year and next year, not counting tuition payments as part of next year’s consumption; and (3) have neither assets nor debts at the end of next year. d) In the…arrow_forwardAccording to how we model the Loanable Funds market in Ch. 6 (considering household savings and taking (T – G) as government’s net ‘saving,’ which could be negative it there were a budget deficit), which of the following shifts the Supply of Loanable Funds curve to the left? (T = taxes; G = government spending.) Group of answer choices A) higher tax rates on business investment spending B) a change in tastes toward consuming less C) higher budget deficit D) change in tastes toward saving more E) lower budget deficitarrow_forward
- 3.3 Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds. 3.4 Explain and show graphically how an increase in expected profits from firm investment projects affects the equilibrium interest rate and the equilibrium quantity of loanable funds. 3.5 Explain and show graphically how an increase in government spending (i.e. budget deficit) affects the equilibrium interest rate in the market for loanable funds.arrow_forwardWhy is investing a more powerful tool to build long-term wealth than saving?arrow_forwardWhat is market for loanable funds? Use the analysis of market for loanable fund to analyse the impact of saving incentives and government budget (deficits) toward the interest rate and quantity of loanable funds! (Explain your answer by using graphical approach)arrow_forward
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