Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annualcontribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year.Shift the appropriate curve on the graph to reflect this change.This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds toand the level of investment spending toScenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose thegovernment implements a new investment tax credit.Shift the appropriate curve on the graph to reflect this change.The implementation of the new tax credit causes the interest rate toScenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defensespending without changing taxes.This change in spending causes the government to run a budgetand the level of saving toShift the appropriate curve on the graph to reflect this change.This causes the interest rate towhichthe level of investment spending.national saving. 5. The market for loanable funds and government policyThe following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help youcomplete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of eachindividual scenario. (Note: You will not be graded on any changes you make to the graph.)INTEREST RATE (Percent)SupplyDemandLOANABLE FUNDS (Billions of dollars)DemandSupply(?)Scenario 1: Individual Retirement Accounts (IRAS) allow people to shelter some of their income from taxation. Suppose the maximum annualcontribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year.

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.) INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand Supply (?) 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 a decrease in the maximum contribution, from $5,000 to $3,000 per year.

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.) INTEREST RATE (Percent) Supply Demand LOANABLE FUNDS (Billions of dollars) Demand Supply (?) 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 a decrease in the maximum contribution, from $5,000 to $3,000 per year.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 6P

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Similar questions

Jse ule following graph to show the effects on the Market for Loanable Funds of many people deciding to play the lottery rather than save money for retirement: Instructions: Drag the supply curve to illustrate the appropriate change in supply. Market for Loanable Funds Interest Rate 100 90 Supply (Savings) 80 70 60 50 40 Demand (Investment) 30 20 10 10 20 30 40 50 60 70 80 90 100 Dollar volume of Savings, Investment
1. In the model of the market for loanable funds, which of the following best describes why the supply curve is upward sloping? a The higher the interest rate, the more likely households are to spend b The higher the interest rate, the less likely firms are invest c The higher the interest rate, the more likely households are to borrow d The higher the interest rate, the more likely households are to save
Use the loanable funds market to illustrate the effect of the following events on the equilibrium. Illustrate the effects on the interest rate and quantity of investment-savings a) The proportion of retired people in the population goes up. Think that usually retired people generally save less than working people at any interest rate. b) At any given interest rate, consumers decide to save more (assume the budget balance is zero). c) At any given interest rate, businesses become very optimistic about the future profitability of investment spending (assume the budget balance is zero).
2) Last year, Alice carned $36,000 from her job. During the same year, she saved $9,000. a. What was Alice's savings rate last year (measured as a percent)? Show your work. b. Suppose Alice wishes to maintain that savings rate this year during which time she made $40,000. How much money should she save this year? Show your work.
Consider the market for loanable fund. Answer the question below. 2.a. The market equilibrium interest rate is 3%. But current interest rate is 4%. Then, is the supply of loanable fund larger, smaller or equal to the demand for loanable fund? 2.b. People’s preference for saving increased. Answer if the equilibrium interest rate and investment would increase, decrease, or would not change. Interest rate: Investment:
8- Describe how the following statements affect either the supply or the demand for loanable funds. For each statement below, do the following: Explain whether the event affects either the demand or the supply of loanable funds. Describe how the statement will affect the equilibrium interest rate and quantity of loanable funds. Draw a graph to demonstrate each answer. Please remember to label each part of the graph. Indicate the change in the interest rate and the quantity of loanable funds on your graph. Analyze each event independently. (Hint: Review the slides and recordings of Lecture 4 for similar graphical analysis). Statements: a) "The national-level saving rate is important from a macroeconomic perspective, in the sense that higher savings tend to strengthen the economy over the long run." b) “Slow-trend growth is reducing the opportunities for profitable long-term investments. The recent downturn in business investment was less of a cyclical blip than a sign of things to…
U3e the tollowing graph to show the effects on the Market for Loanable Funds of businesses discovering they have more than enough capital to meet the demand for their goods: Instructions: Drag the demand curve to illustrate the appropriate change in demand. Market for Loanable Funds Interest Rate 100 Supply (Savings) 90 80 70 60 50 Demand (Investment) 40 30 20 10 10 20 30 40 50 60 70 80 90 100 Dollar volume of Savings, Investment
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.) 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 a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to ______ (fall/ rise) and the level of investment spending to _____…
2. According to the textbook, which of the following statements is (are) correct? (x) The price of loanable funds is the interest rate and the interest rate is determined by the forces of supply and demand in the loanable funds market. (y) The supply of loanable funds slopes upward because an increase in the interest rate provides an incentive for people to save more. (z) The demand for loanable funds slopes downward because a decrease in the interest rate provides an incentive for people to borrow more. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (x) only 4. Suppose a surplus of loanable funds exists at the present interest rate in the loanable funds market. Given the presence of this disequilibrium, A. the supply of loanable funds will shift to the right and the demand will shift to the left. B. the supply of loanable funds will shift to the left and the demand will shift to the right. C. both the supply of loanable funds and the demand will…
Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.
If and when the demand of loanable funds shifts to the left: Group of answer choices 1. This is good news for people who rely on the interest earnings from their savings but bad news for people who have outstanding home loans. 2. This is bad news for people who rely on the interest earnings from their savings but good news for people who have outstanding home loans. 3. This is good news both for people who rely on the interest earnings from their savings as well as those who have outstanding home loans. 4. This is bad news both for people who rely on the interest earnings from their savings as well as those who have outstanding home loans.
1. Using the market for loanable fund diagram, show graphically and explain how the interest rate and investment are affected in each of the following cases. (Draw a separate diagram for each.)i. Tax on interest income decreases.ii. Government is running a budget surplus.iii. Investment tax credit falls.