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 5QR
To determine
The impact of change in tax code on private savings and loanable fund market for loanable funds.
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How does an increase in government borrowing affect the equilibrium interest rate in the market for loanable funds?
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?…
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?
Chapter 26 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
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Similar questions
- The 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_forwardDraw a correctly labeled graph showing equilibrium in the loanable funds marketarrow_forwardeffects of an increase in disposable income in loanable funds marketarrow_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 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_forward
- When 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_forwardWhat factors make up the total demand for loanable funds? The total supply of loanable funds. Please list and define each of these demand and supply factors in the Loanable Funds Theory of Interest.arrow_forward
- What impact will increases in income have on the Market for Loanable Funds? A) Decrease Supply B) Decrease Demand C) Increase Demand D) Increase Supplyarrow_forwardWhich factor brings the supply and demand of loanable funds into balance? net capital outflows the real interest rate the futures market for commodities collective bargaining domestic investmentarrow_forwardThe supply and demand curves for loanable funds are affected by different factors. Classify each event according to which curve shifts, if any, and the direction of the shift. an increase in tax breaks a decrease in the productivity of capital an increase in the real interest rate an increase in investor confidence an increase in life expectancy a decrease in the government budget surplus increase in the demand for loanable funds increase in the demand for loanable funds neither curve shifts increase in the demand for loanable funds increase in the supply of loanable funds increase in the demand for loanable funds Answer Bank increase in the supply of loanable funds increase in the demand for loanable funds decrease in the supply of loanable funds decrease in the demand for loanable funds neither curve shiftsarrow_forward
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