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.
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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.
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- Using the market for loanable fund diagram, show graphically how it affects interest rate and investment in each of the following cases. a) G > T. b) A book titled ‘Live for Tomorrow’ convinces people to spend less. c) Tax on interest income rises. please answer step by step.Answer must be correct.Show all calculation. please Don,t copy from anywhere.Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000. Here are the rates of return on the students' investment projects: Return Student (Percent) Antonio 4 Dmitri Frances 15 Assume borrowing and lending is prohibited, so each student uses only personal saving to finance his or her own investment project. Complete the following table with how much each student will have a year later when the project pays its return. Money a Year Later Student (Dollars) Antonio Dmitri FrancesSuppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds. Loanable funds Demand Interest rate Supply
- Suppose that the government changes the tax code to allow additional amounts of money to be placed in 401(k) retirement accounts, increasing the extent to which people can delay their tax obligations. Show the effect by shifting the appropriate curve in the market for loanable funds.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).Investment — End of Chapter Problem Move the appropriate curve or curves in each graph to illustrate the effect of each of the four events on the market for loanable funds. If the event should not impact the market for loanable funds, then leave the graph unchanged.
- Provide two examples of changes in the market for loanable funds that can result in a change in the level of interest rates. Explain how and why the interest rate changes based on the loanable fund theory.Suppose the government borrows $20 million more next year than this year. How does the elasticity of the supply of loanable funds affect the size of these changes? How does the elasticity of the demand of loanable funds affect the size of these changes?Using the loanable fund model (financial market) presented in chapter 3, suggest using a graph at least two policies that a government could use to increase the equilibrium quantity of investment in the economy, and carefully explain how these policies produce this result.
- Graph Interest Rate Figure 2 Saving Incentives Increase the Supply of Loanable Funds A change in the tax laws to encourage Americans to save more would shift the supply of loanable funds to the right from S₁ to S₂. As a result, the equilibrium interest rate would fall, and the lower interest rate would stimulate investment. Here the equilibrium interest rate falls from 5 percent to 4 percent, and the equilibrium quantity of loanable funds saved and invested rises from $1,200 billion to $1, 600 billion. 5% 4% 2.... which reduces the equilibrium interest rate... See graph built step by step 0 $1,200 Supply, S₁ $1,600 3.... and raises the equilibrium quantity of loanable funds. 5₂ 1. Tax incentives for saving increase the supply of loanable funds... Demand Build graph yourself Loanable Funds (in billions of dollars)a high interest rate can also indicate that something positive is happening in the economy. Describe how positive factors can lead to an increased in the demand for loanable funds and then an increase in the interest rate.The following graph shows the market for loanable funds. The upward-sloping orange line represents the supply of loanable funds, and the downward- sloping blue line represents the demand for loanable funds. For each of the given scenarios, return the following graph to its initial state and then adjust the appropriate curve on the graph to help you complete the questions that follow. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) Supply LOANABLE FUNDS (Billions of dollars) Demand Demand 10 Supply