Refer to the figure below, which depicts a closed economy?s saving, government budget deficit, and planned investment functions. Interest rate 8 6 2 O 100 200 300 400 Interest rate $ billions 4 2 O 100 200 300 400 Interest rate 8 $ billions 6 4 2 O Which of the following is least likely to be correct? 100 200 300 400 $ billions If the interest rate rises, then the line in the left graph will shift to the left. The economy?s demand for loanable funds is obtained by horizontally summing the lines in the left and centre graphs. The middle graph depicts the government budget deficit function. The equilibrium quantity of loanable funds is $300 billion.

Refer to the figure below, which depicts a closed economy?s saving, government budget deficit, and planned investment functions. Interest rate 8 6 2 O 100 200 300 400 Interest rate $ billions 4 2 O 100 200 300 400 Interest rate 8 $ billions 6 4 2 O Which of the following is least likely to be correct? 100 200 300 400 $ billions If the interest rate rises, then the line in the left graph will shift to the left. The economy?s demand for loanable funds is obtained by horizontally summing the lines in the left and centre graphs. The middle graph depicts the government budget deficit function. The equilibrium quantity of loanable funds is $300 billion.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter31: The Impacts Of Government Borrowing

Section: Chapter Questions

Problem 3SCQ: In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus and the trade...

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In the late 1990s, the U.S. government moved from a budget deficit to a budget surplus and the trade deficit in the U.S. economy grew substantially. Using the national saving and investment identity, what can you say about the direction in which saving on/or investment must have changed in this economy?
Use the analysis for the market for loanable funds diagram to illustrate and explain how thefollowing government policy affect the economy’s saving and investment. Policy 1: Suppose thegovernment changes the tax code, allowing individuals to reduce their taxable income if they savemoney in registered retirement savings plans (RRSPs). Your response should answer the following questions:a. State and explain which loanable funds curve would this policy affect? b. Which way would the loanable funds curve shift? c. What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.
Use the analysis for the market for loanable funds diagram to illustrate and explain how thefollowing government policy affect the economy’s saving and investment. Policy 1: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs). Your response should answer the following questions: a. State and explain which loanable funds curve would this policy affect? b. Which way would the loanable funds curve shift? c. What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.
The table shows an economy's demand for loanable funds and supply of loanable funds schedules when the government's budget is balanced. The quantity of loanable funds demanded increases by $2.0 trillion at each real interest rate and the quantity of loanable funds supplied increases by $1.0 trillion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 trillion, what are the real interest rate, the quantity of loanable funds, investment, and saving? >>> Answer to 1 decimal place. Real interest rate (percent per year) Loanable funds Loanable funds demanded supplied (trillions of 2012 dollars per year) 4 7.5 6.5 5 7.0 7.0 6 6.5 7.5 7 6.0 8.0 8 5.5 8.5 9 5.0 9.0 10 4.5 9.5 The real interest rate is 7 percent a year. The quantity of loanable funds is $ trillion, investment is $ trillion, and saving is $ trillion.
1 a. Suppose there are two types of investment in the economy: business fixed investment and residential investment. Suppose that loanable fund market is in equilibrium and the government grants an investment tax credit only for business investment. How does this policy affect the supply and demand for loanable funds, the equilibrium interest rate and equilibrium quantity of loanable funds? Use graph to explain your answe