RealInterest RateS25%DLoanable Funds$1,000(in billions of dollars)The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. Which of thefollowing events would shift the supply curve from S1 to S2?Government goes from running a balanced budget to running a budget surplus.O In response to decreased tax incentives, firms invest more than they previously invested.O In response to increased tax incentives firms invest less than they previously invested.O In response to tax reform, households are motivated to save less than they previously saved.

Loanable Funds is defined as the sum total of the money owned by the people and entities in an…

Answered: The figure depicts a…

The figure depicts a demand-for-loanable-funds curve and two supply-of-loanable-funds curves. Which of the following events would shift the supply curve from S1 to S2?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Savings,investment And The Financial System

Section: Chapter Questions

Problem 8PA

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Under what general macroeconomic circumstances might a government use expansionary fiscal policy? When might it use contractionary fiscal policy?
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.
The table shows the demand for loanable funds schedule and the supply of loanable funds schedule when the govemment budget is balanced. If the government budget deficit is $1.0 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? HEITI If the government budget deficit is $1.0 trillion, the real interest rate is percent a year If the government budget deficit is $1.0 trillion, the quantity of investment is $ trillion, and the quantity trillion. of private saving is $ S Is there any crowding out in this situation? OA. Yes. The deficit increases the real interest rate, which decreases investment. GELOO Real interest rate (percent per year) 4 677997 8 10 4 Loanable funds Loanable funds demanded supplied (trillions of 2012 dollars per year) 8.5 8.0 05 77761 7.5 7.0 6.5 05 6.0 5.5 5.5 6.0 6.5 7.0 7.5 8.0 8.5 6770 00
Figure 21-2 Apol Interest THE L 00 Supply D Demand D. Loanable funds [bons of dollars per year. Refer to Figure 21-2. Which of the following is consistent with the graph depicted above? New government regulations decrease the profitability of new investment. Consumption taxes increase. The government runs a budget surplus. An expected expansion increases the profitability of new investment.
Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. B o A F S₁ D2 D1 Refer to Figure 26-3. Which of the following movements shows the effects of the government going from a budget deficit to a budget surplus? OA. a movement from Point A to Point B OB. a movement from Point B to Point A OC. a movement from Point A to Point F OD. a movement from Point C to Point B
Economics In the figure, the DLF curve is the demand for loanable funds curve and the PDLF curve is the private demand for loanable funds curve. If there is no Ricardo-Barro effect, the figure Real interest rate (percent per year) 12- shows the situation in which the government has a so that the equilibrium real interest rate is equilibrium quantity of investment is 10- and the SLF 8- O A. budget deficit; 6 percent; $1.5 trillion B. budget deficit; 4 percent; $1 trillion 6- OC. budget surplus; 6 percent; $1.5 trillion D. budget surplus; 4 percent; $1 trillion E. balanced budget; 6 percent; $1.5 trillion 2- DLF PDLF 0- 2.0 Loanable funds (trillions of 2012 dollars) 0.5 1.0 1.5 2.5 3.0 O O O O O
Suppose the government borrows $20 billion more next year than this year,a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.c. How does the elasticity of supply of loanable funds affect the size of these changes?d. How does the elasticity of demand for loanable funds affect the size of these changes?e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?
a. In which instance would "crowding out" likely become a concern? OA balanced budget law prevents the government from taking fiscal action during a recession. O Prior-year budget surpluses allow the government to use saved funds to reduce taxes. O In order to increase spending on infrastructure, the federal government decides to borrow funds. b. One result of "crowding out," due to fiscal action, is difficulty saving income for future purchases. O making economic investments. O purchasing stocks and other financial investments.
Which of the following policy actions wouldunambiguously reduce the supply of loanable fundsand crowd out investment?a. an increase in taxes and a decrease ingovernment spendingb. a decrease in taxes together with an increase ingovernment spendingc. an increase in both taxes and governmentspendingd. a decrease in both taxes and government spending
On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves. Supply X Demand 2 10 20 30 40 50 QUANTITY OF LOANABLE FUNDS (Billions of dollars) 12 IN TEREST RATE 10 0 0 60 ģ Demand Supply ? Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1.25 billion. by According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest rate in the money market to from 6% to %. The change in the interest rate causes the level of investment spending to $ billion. by After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to $ billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment spending is known as the effect. Place the purple line (diamond…
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.
Refer to the figure below to answer the following questions. Real interest rate (percent per year) 4 3 2 1 O Private saving is $ PSLF 15 20 25 Loanable funds (billions of 2007 dollars) Investment is $ In the situation above the government has a budget SLF saving is $25 billion. DLF billion. billion and national