Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 26, Problem 4QCMC
To determine
The effect of the save more for retirement on the loanable fund market.
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If a popular TV show on personal finance convincesAmericans to save more for retirement, the_________ curve for loanable funds would shift,driving the equilibrium interest rate _________.a. supply; upb. supply; downc. demand; upd. demand; down
Use the graph to answer the question that follows.
Real interest
rate %
r
Dif
q
q'
Quantity of
loanable funds $
The graph shows a change in an economy after the government's decision to provide tax benefits to businesses in an effort to increase investment. What is the new point of equilibrium in the economy's loanable funds market?
O o
Or
O o
O q
Or
o'
Sif
D'If
There is recently an increase in private saving in Canada. Assume this occured by a drop in autonomous consumption.
a. what happens to the supply of loanable funds? Shift right, shift left, no shift
b. what happens to the demand for loanable funds? Shift right, shift left, no shift
c. what happens to the real interest rate? up, down, stay the same
Chapter 26 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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- Recently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase.arrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase. Clear my choicearrow_forwardIn the graph you've just made, how does a tax on interest income influence the real interest rate and investment? A tax on interest income _______ loanable funds, which _______ the real interest rate and _______ investment. A. decreases the demand for; raises; decreases B. decreases the supply of; raises; decreases C. increases the supply of; lowers; increases D. increases the demand for; lowers; increases Screenshot attached thanksarrow_forward
- Hi I want to ask what will happen to the market of loanable funds and the natural level of output in long run when the government runs a budget surplus? what will the graph of the loanable funds market look like?arrow_forwardShow how an increase in the supply of loanable funds and a decrease in the demand for loanable funds can lower the real interest rate and leave the Real interest rate (percent per year) 12- equilibrium quantity of loanable funds unchanged. 10- Draw a demand for loanable funds curve. Label it DLF,. Draw a supply of loanable funds curve. Label it SLF,. Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. 8- 6- Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF,. Draw a curve that shows an increase in the supply of loanable funds. Draw it in such a way that the equilibrium quantity of loanable funds does not change. Label it SLF,. 4- 2- Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2. 0- Loanable funds (trillions of 2007 dollars) >>> Draw only the objects specified in the question.arrow_forwardConsider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to provide incentives on savings by allowing people to shield their savings by opening Retirement Accounts with commercial banks. What is the effect of this policy on the market for loanable finds a. Interest rate will (Please write one word either increase or decrease in the blank). b. Quantity of loanable funds will (Please write one word either increase or decrease in the blank) Now assume, the parliament passed a tax reform aimed at making investment more attractive-for instance, by instituting an investment tax credit. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new piece of equipment What is the effect of this policy on the market for loanable finds c. Interest rate will (Please write one word either increase or decrease in the blank). d. Quantity of loanable funds will (Please write one word either increase or decrease in the blank)arrow_forward
- According 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_forwardPLEASE HELP MEarrow_forwardSuppose the real interest rate is higher than the equilibrium interest rate. We can predict that a. The real interest rate will decrease to encourage investment and discourage saving b. The real interest rate will increase to discourage investment and encourage saving c. The real interest rate will decrease to discourage investment and encourage saving d. The real interest rate will increase to encourage investment and discourage savingarrow_forward
- Consider the market for loanable fund. Suppose that government started to give tax incentives for investment (so the cost of investment fell.) Answer which curve (Demand or Supply) would shift to which direction (Left or Right), and answer how the equilibrium saving would change (Decrease or Increase)Curve: Direction: Saving:arrow_forwardDuring the financial crisis it was proposed that firms be provided with a tax credit for investment projects. Such a tax credit would shift: a. the demand for loanable funds left and shift the supply of dollars in the market for foreign-currency exchange right. b. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange right. c. both the demand for loanable funds and the supply of dollars in the market for foreign-currency exchange left. d. the demand for loanable funds right and shift the supply of dollars in the market for foreign-currency exchange left.arrow_forwardDraw a graph to illustrate the effect of a decrease in the demand for loanable funds and a smaller decrease in the supply of loanable funds on the real interest rate and the equilibrium quantity of loanable funds. Draw a demand for loanable funds curve. Label it DLF Draw a supply of loanable funds curve. Label it SLF Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1. Draw a curve that shows a decrease in the demand for loanable funds. Label it DLF₁. Draw a curve that shows a smaller decrease in the supply of loanable funds. Label it SLF₁. Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2. KKKTES 12.0 10.0 8.0 6.0 4.0 20 Real interest rate (percent per year) 0.0+ 0.0 5.0 Q Q 2 1.0 2.0 3.0 4.0 Loanable funds (trillions of 2012 dollars) >>> Draw only the objects specified in the question.arrow_forward
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