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Queston 4: Suppose that at equilirbum the real interest rate is 5%. Assume the government gave...
Assume that the market for loanble funds is in equilibrium and that the federal government budget...
Assume that the market for loanble funds is in equilibrium and that the federal government budget is balanced. Now assume that the federal government begins to run a budget deficit (G > T). Does this shift the supply or demand for loanable funds? Why? What happens to the real interest rate? What happens to the quantity of loanable funds? What is the resulting impact on investment in the economy? What is this called?
4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25%...
4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25% and quantity of funds at $20 billion. Suppose the current government deficit is zero so government is not borrowing any money. a) Suppose now government increases spending by $2 billion and finances it entirely by borrowing. This deficit increases equilibrium interest rate to 2% and equilibrium quantity of funds to $21.5. Show the changes on the graph. b) What happens to private investment (I)...
4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25%...
4. Assume that the equilibrium in the loanable funds market is at interest rate of 1.25% and quantity of funds at $20 billion. Suppose the current government deficit is zero so government is not borrowing any money. a) Suppose now government increases spending by $2 billion and finances it entirely by borrowing. This deficit increases equilibrium interest rate to 2% and equilibrium quantity of funds to $21.5. Show the changes on the graph. b) What happens to private investment (I)...
Real interest rate (percent per year) 9.07 SLF The graph shows the supply of loanable funds...
Real interest rate (percent per year) 9.07 SLF The graph shows the supply of loanable funds and the demand for loanable funds in an economy Suppose the government has a budget deficit of $0.2 trillion and the Ricardo-Barro effect holds. Draw the new demand for loanable funds curve. Label it. Draw the new supply of loanable funds curve. Label it. Draw a point that shows the equilibrium quantity of loanable funds and interest rate. The Ricardo-Barro effect is the proposition...
Use the loanable funds model to analyze the effects of a government budget deficit: -Draw the...
Use the loanable funds model to analyze the effects of a government budget deficit: -Draw the diagram showing the initial equilibrium of the loanable fund market in the below perpendicular axis. 1 point -Determine which curve shifts when the government runs a budget deficit (explain), and draw the new curve on your diagram. I point -What happens to the equilibrium values of the interest rate and investment? Explain. 1 point -Determine the relationship between the crowding-out effect and investment, explain...
Assume the government introduces a tax on your savings accounts (this includes all online savings accounts)....
Assume the government introduces a tax on your savings accounts (this includes all online savings accounts). Explain this effect has on the market for loanable funds using a diagram. What happens to equilibrium quantity of loanable funds and equilibrium real interest rates?
3. E ffects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domesti...
3. Effects of a government budget deficit Consider a hypothetical open economy. The following table presents data on the relationship between various real interest rates and national saving, domestic investment, and net capital outflow in this economy, where the currency is the U.S. dollar. Assume that the economy is currently experiencing a balanced government budget. Given the information in the preceding table, use the blue points (circle symbol) to plot the demand for loanable funds. Next, use the orange points (square symbol)...
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...
5. The government is running a budget balance of zero when it decides to increase education...
5. The government is running a budget balance of zero when it decides to increase education spending by $200 billion and finance the spending by selling bonds. The accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. How will the equilibrium interest rate and the equilibrium quantity of loanable funds change? Is there any crowding out in the market? Interest rate 24% 22 0 $200 400...
1a) Assame that businesses are granted,4 fax credit on spending for machinery Using a correctly labeled...
1a) Assame that businesses are granted,4 fax credit on spending for machinery Using a correctly labeled graph of the loanable funds market,show the effect of the business sector's response on the real interest rate(07) b) Now assume instead the tax rate on interest income from housebold savings is lowered and there is no change in government budget deficit. Using a second correctly labeled graph of the loanable funds market show the effect of the houschold's response on the real interest...
Real interest rate (percent per year) 9.07 SLF The graph shows the supply of loanable funds and the demand for loanable funds in an economy Suppose the government has a budget deficit of $0.2 trillion and the Ricardo-Barro effect holds. Draw the new demand for loanable funds curve. Label it. Draw the new supply of loanable funds curve. Label it. Draw a point that shows the equilibrium quantity of loanable funds and interest rate. The Ricardo-Barro effect is the proposition...
Use the loanable funds model to analyze the effects of a government budget deficit: -Draw the diagram showing the initial equilibrium of the loanable fund market in the below perpendicular axis. 1 point -Determine which curve shifts when the government runs a budget deficit (explain), and draw the new curve on your diagram. I point -What happens to the equilibrium values of the interest rate and investment? Explain. 1 point -Determine the relationship between the crowding-out effect and investment, explain...
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...
5. The government is running a budget balance of zero when it decides to increase education spending by $200 billion and finance the spending by selling bonds. The accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. How will the equilibrium interest rate and the equilibrium quantity of loanable funds change? Is there any crowding out in the market? Interest rate 24% 22 0 $200 400...
1a) Assame that businesses are granted,4 fax credit on spending for machinery Using a correctly labeled graph of the loanable funds market,show the effect of the business sector's response on the real interest rate(07) b) Now assume instead the tax rate on interest income from housebold savings is lowered and there is no change in government budget deficit. Using a second correctly labeled graph of the loanable funds market show the effect of the houschold's response on the real interest...
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