Homework Answers
In following graphs, D0 and S0 are initial demand and supply curves of loanable funds, intersecting at point A with initial interest rate r0 and quantity of loanable funds (saving/investment) Q0.
(a)
Higher government purchase increases government borrowing for deficit financing. Demand for loanable funds increases, shifting demand curve rightward, increasing interest rate and increasing quantity of loanable funds (saving/investment). In long run, higher investment increases growth rate.
In following graph, D0 shifts right to D1, intersecting S0 at point B with higher interest rate r1 and higher quantity of loanable funds (savings/investment) Q1.
(b)
A TFSA increases savings, shifting supply curve rightward, decreasing interest rate and increasing quantity of loanable funds (saving/investment). In long run, higher investment increases growth rate.
In following graph, S0 shifts right to S1, intersecting D0 at point B with lower interest rate r1 and higher quantity of loanable funds (savings/investment) Q1.
(c)
Higher business confidence increases business investment. Demand for loanable funds increases, shifting demand curve rightward, increasing interest rate and increasing quantity of loanable funds (saving/investment). In long run, higher investment increases growth rate.
In following graph, D0 shifts right to D1, intersecting S0 at point B with higher interest rate r1 and higher quantity of loanable funds (savings/investment) Q1.
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Chapter 25 In Class Exercise 1. For each of the following situations, explain with words and...
Let assume an economy in this year with the following loanable funds (LF) market demand equation....
Let assume an economy in this year with the following loanable funds (LF) market demand equation. Demand: r = 8 – 0.005 * Qp Where, r is the real interest rate (ifr=12 then the interest rate is 12%), Q, in the quantity demanded of loanable funds (total investment). The government expenditures (G) is $300 billion, collected taxes (T) equal to $700 billion, and private saving is $800 billion. 1. Calculate the value of government savings in this economy. Is the...
1. Which of the following is true regarding spending and saving? a. Money that is spent...
1. Which of the following is true regarding spending and saving? a. Money that is spent cannot be saved. b. Spending is good for the economy; saving is bad for the economy. c. Spending money on items that are on sale is the same as saving money. d. Saving money and spending the same dollars has become easier with online banking. 2. If savers were to decrease the level of savings in an economy, what would happen in the loanable...
Savings/Investment in Class GDP = 10 Consumption = 7 Government Spending = 2 Private Savings = 1 Transfer Payments...
Savings/Investment in Class GDP = 10 Consumption = 7 Government Spending = 2 Private Savings = 1 Transfer Payments = 1 A) Calculate Taxes, Investment, Public Savings and National Savings B) Draw the graph of the market for loanable funds, assuming the equilibrium interest rate i* = 3% Make sure to label the axis and equilibrium points C) If G increases so that now G = 2.5, recalculate Public Savings, National Savings and Investment. (assume that any other variables stay...
QUESTION 1 Let's assume that the country has the following production function Y depreciation rate of...
QUESTION 1 Let's assume that the country has the following production function Y depreciation rate of 4%, calculate the steady-state level of capital FIK) = UK Also this country has 800 units of capital. Assuming that the investment rate is 40%, and a a. 25 b. 100 0.80 d. 200 QUESTION 9 According to what we learned in class, why would long-term bonds have a higher interest rate then short term bonds? 1. A longer maturity for a bond provides...
Problem 3. The Crowding Out Effect. In a closed economy, the consumption function is C =...
Problem 3. The Crowding Out Effect. In a closed economy, the consumption function is C = 80+ 0.8YD – 20r, where Yd is disposable income, taxes Tx = 200 and transfers are Tr = 100. The investment function is I = 550 – 130r. Output is Y = 1000. Here the real interest rate is measured in percentage points (e.g. for r = 5% use 5 and not 0.05). (A) Find net taxes T and government spending G if the...
please this is 50marks help me. it is my presentation explain vividly and with appropriate graphs Case III: The Japa...
please this is 50marks help me. it is my presentation
explain vividly and with appropriate graphs
Case III: The Japanese Slump Japan has been experiencing a persistent level of deflation and a high risk of liquidity trap since the 1990s. Accordingly, some economists recommend that the Japanese government pass large cuts to encourage more consumer spending. Although this advice was followed to some tax makers were reluctant to enact very large tax cuts because, they wanted debt arose in part...
Using the model of loanable funds developed in Chapter 3, explain how the following changes affect...
Using the model of loanable funds developed in Chapter 3, explain how the following changes affect the real interest rate, investment, consumption, and government expenditure. Include the appropriate diagram as part of your answer in each case. Initially assume that consumption depends only on disposable income. (a) The government increases taxes. (b) Expectations about the future profitability of investment improve. (Hint: For a given real interest rate, r, firms will invest a greater amount after expectations improve). (c) How does...
The following graph shows the market for loanable funds. For each of the given scenarios, adjust...
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.) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the...
A closed economy can be described by the long-run classical model: Y = 2KαL1–α C =...
A closed economy can be described by the long-run classical model: Y = 2KαL1–α C = 18500 + 0.75(Y – T) – 800r I(r) = 11000 – 1200r Note: r represents the real interest rate and is measured in percentage points (for example, if we find r = 10, then r is interpreted as being equal to 10%). Keep your answer to 4 decimal places if needed. Assume that there are two factors of production, capital (K) and labour (L),...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax...
(1) Which of the following is not a tool of fiscal policy? Government spending Taxes Tax incentives Private investment (2) Which of the following statements helps to explain why the economy can be slow to recover from a recession? Workers are less motivated because of reduced expectations, which reduces total output. There is not as much money in circulation to fuel new investment. Wages do not fall quickly, which delays an adjustment to a higher output level....
Let assume an economy in this year with the following loanable funds (LF) market demand equation. Demand: r = 8 – 0.005 * Qp Where, r is the real interest rate (ifr=12 then the interest rate is 12%), Q, in the quantity demanded of loanable funds (total investment). The government expenditures (G) is $300 billion, collected taxes (T) equal to $700 billion, and private saving is $800 billion. 1. Calculate the value of government savings in this economy. Is the...
Savings/Investment in Class GDP = 10 Consumption = 7 Government Spending = 2 Private Savings = 1 Transfer Payments = 1 A) Calculate Taxes, Investment, Public Savings and National Savings B) Draw the graph of the market for loanable funds, assuming the equilibrium interest rate i* = 3% Make sure to label the axis and equilibrium points C) If G increases so that now G = 2.5, recalculate Public Savings, National Savings and Investment. (assume that any other variables stay...
QUESTION 1 Let's assume that the country has the following production function Y depreciation rate of 4%, calculate the steady-state level of capital FIK) = UK Also this country has 800 units of capital. Assuming that the investment rate is 40%, and a a. 25 b. 100 0.80 d. 200 QUESTION 9 According to what we learned in class, why would long-term bonds have a higher interest rate then short term bonds? 1. A longer maturity for a bond provides...
Problem 3. The Crowding Out Effect. In a closed economy, the consumption function is C = 80+ 0.8YD – 20r, where Yd is disposable income, taxes Tx = 200 and transfers are Tr = 100. The investment function is I = 550 – 130r. Output is Y = 1000. Here the real interest rate is measured in percentage points (e.g. for r = 5% use 5 and not 0.05). (A) Find net taxes T and government spending G if the...
please this is 50marks help me. it is my presentation
explain vividly and with appropriate graphs
Case III: The Japanese Slump Japan has been experiencing a persistent level of deflation and a high risk of liquidity trap since the 1990s. Accordingly, some economists recommend that the Japanese government pass large cuts to encourage more consumer spending. Although this advice was followed to some tax makers were reluctant to enact very large tax cuts because, they wanted debt arose in part...
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