Consider the effects of the following events in the loanable funds market model Briefly explain whether the supply or demand for loanable shifts (and in which direction) Briefly explain what happens to national savings, private investment spending, and real interest rates (a) An increase in government spending, ceteris paribus (b) Domestic businesses become optimistic about the future and this improves profitability prospects for businesses at any given real interest rate

Consider the effects of the following events in the loanable funds market model Briefly explain whether the supply or demand for loanable shifts (and in which direction) Briefly explain what happens to national savings, private investment spending, and real interest rates (a) An increase in government spending, ceteris paribus (b) Domestic businesses become optimistic about the future and this improves profitability prospects for businesses at any given real interest rate

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 9P

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QUESTION 7 Use the following diagram to answer this question The accompanying graph shows the market for loanable funds in equilibrium. Interest rate (%) 12 10 8 6 4 2 0 S E X 2 D 3 4 6 5 Quantity of loanable funds (trillions of dollars) Which of the following might produce a new equilibrium interest rate of 2% and a new equilibrium quantity of loanable funds of $1 trillion? OA. Consumers have increased consumption as a fraction of disposable income. OB. Businesses have become more pessimistic about the future and, as result; they plan to cut back on their spending. OC. The federal government has a budget surplus rather than a budget deficit. OD. The federal government has a budget deficit rather than a budget surplus. uhmit. Click Save All Answers to save all answers.
Question 4 Consider the following policy scenarios and for each scenario diagrammatize and fully explain using analysis for the market for loanable funds how the following government policies affect the economy’s saving and investment. [Kindly note: Each Diagram, Detailed Explanation (a) Scenario Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. (b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs).
What is the effect of a fall in the real interest rate on the demand for loanable funds? A fall in the real interest rate _______. A. decreases the demand for loanable funds and shifts the demand curve leftward B. decreases the quantity of loanable funds demanded up along the demand curve C. increases the demand for loanable funds and shifts the demand curve rightward D. increases the quantity of loanable funds demanded down along the demand curve Thanks!
5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) Customize and control Google Chrome Supply Demand Supply Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is an increase in the maximum contribution, from $5,000 to $8,000 per year. INTEREST RATE (Percent)
Question 4 Consider the following policy scenarios and for each scenario diagrammatize and fully explain using analysis for the market for loanable funds how the following government policies affect the economy’s saving and investment. [Kindly note: Each Diagram must have a detailed Explanation. (a) Scenario Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. (b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs).
Question 3 For parts a)-d), evaluate the effect of each of the following events on the market for loanable funds. Explain the effects on savings, investment, and the (neutral) real interest rate. a) The government runs a government budget surplus instead of a deficit. b) The government decides to forgive some of the $66 billion in student loan debt. c) Chinese investors stop sending their funds to Australia, reducing net capital inflows. d) The nominal interest rate rises 1% in response to a 1% rise in the inflation rate. Briefly compare the impact of the global financial crisis (GFC) in the US in 2007- 2009 to other U.S. recessions since 1950. Why did household consumption in the US fall during this recession, unlike in previous recessions? ŵ
What is the effect of a fall in the real interest rate on the demand for loanable funds? A fall in the real interest rate _______. A. increases the quantity of loanable funds demanded down along the demand curve B. decreases the quantity of loanable funds demanded up along the demand curve C. decreases the demand for loanable funds and shifts the demand curve leftward D. increases the demand for loanable funds and shifts the demand curve rightward
Consider the following policy scenarios and for each scenario diagrammatize and fully explain using analysis for the market for loanable funds how the following government policies affect the economy’s saving and investment. [Kindly note: please show Diagram and give Detailed Explanation (a) Scenario Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. (b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs)
5. The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) Demand Supply Supply Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is an increase in the maximum contribution, from $5,000 to $8,000 per year. 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 v and the level of investment…
Question 19 The demand for loanable funds is determined by the willingness of ________ to borrow money to engage in new investment projects. government households firms banks
QUESTION 9 Use the following diagram to answer this question The accompanying graph shows the market for loanable funds in equilibrium. Interest rate (%) 12 10 8 6 4 0 XH 2 3 E 4 6 5 Quantity of loanable funds (trillions of dollars) S Which of the following might produce a new equilibrium interest rate of 2% and a new equilibrium quantity of loanable funds of $5 trillion? OA. Firms become pessimistic about the future and, as a result, they cut back on their plans to buy new equipment and build new factories. ⒸB. Congress decreases the tax rate on interest income. C. Capital inflows from foreign citizens are declining. D. The U.S. government offers a tax credit for firms that built new factories in the U.S.
Question 4 [Drawing upon the principles of the loanable funds market model, assume that the government slashes its spending while there is no change in taxation and holding constant all other factors in the economy. This policy is likely to have a positive effect on (planned) private investment in the economy. “Private investment” refers to investment in physical capital by firms and residential investment by households.