Scenario 2: The government increases deficit spending by $100 Billion dollars to invest in green energy throughout the country. 1What effect will this have on the demand for loanable funds? 2. What effect will this change have on the interest rate? How will this change the behavior of consumers?

Scenario 2: The government increases deficit spending by $100 Billion dollars to invest in green energy throughout the country. 1What effect will this have on the demand for loanable funds? 2. What effect will this change have on the interest rate? How will this change the behavior of consumers?

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Six Debates Over Macroeconomic Policy

Section: Chapter Questions

Problem 6PA

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Suppose the government runs fewer budget deficit and there is a decrease in the average household income. Then, O The new EQ quantity of loanable funds would be indeterminate, , but the new EQ interest rate would increase. O The new EQ quantity of loanable funds would decrease, but the new EQ interest rate would be indeterminate. O The new EQ quantity of loanable funds would be indeterminate, , but the new EQ interest rate would decrease. The new EQ quantity of loanable funds would be indeterminate, but the new EQ interest rate would increase. The new EQ quantity of loanable funds would increase, but the new EQ interest rate would be indeterminate.
1. Suppose the government borrows $20 million more next year than this year. a. How does the elasticity of the supply of loanable funds affect the size of thesechanges? b. How does the elasticity of the demand of loanable funds affect the size of thesechanges?
Suppose the market for loanable funds is currently in equilibrium. Which of the following factors will cause an increase in the interest rate? Select one: O a. An increase in the household saving rate O b. An expansionary monetary policy Oc. An increase in business confidence O d. A decrease in government budget deficits Travis buys a 20-year, $10,000 US Treasury bond with a coupon rate of 5%. After three years, he has some unexpected expenses and decides to sell the bond. In which market will Travis sell his bond? Select one: O a. The secondary bond market O b. The primary bond market O c. The Treasury bond market Od. The T-bond market
Question 4 Suppose congress pass a law that offers a tax credit for firms that built new factories in the U.S. Then the O a. supply of loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. O b. demand for loanable funds would shift rightward, initially creating a shortage of loanable funds at the original interest rate. O c. demand for loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate. O d. supply of loanable funds would shift rightward, initially creating a surplus of loanable funds at the original interest rate.
Figure 32-1 REAL INTEREST RATE (Percent) 8 7 50 5 4 3 N Demand Supply 10 20 30 40 50 60 70 80 QUANTITY OF LOANABLE FUNDS (Billions of dollars) Refer to Figure 32-1. If the real interest rate is 7 percent, the quantity of loanable funds demanded is O $70 billion, and the quantity supplied is $10 billion. $10 billion, and the quantity supplied is $70 billion. O $10 billion, and the quantity supplied is $10 billion. O $70 billion, and the quantity supplied is $10 billion.
Interest 6% lonable fund is 4trillion. Suppose there was a change in the tax laws to encourage savers to save more and as a result, assume the equilibrium interest rate falls by 2 % point. By how much the equilibrium loanable funds saved and invested would rise or fall?
14) What could explain what is happening in the graph to the right? a. The government has given investors an investment tax credit, increasing investors appetite for savings. b. The government has removed the tax protected status of IRA accounts, increasing savings. c. The government balances the interest rate Το r1 Eo E1 So $1 budget reducing its debt, and the "crowding out" effect disappears. business desire to obtain funds. 90 91 quantity of loanable funds d. A new technology makes industry much more productive, therefore increasing e. There are many things that could explain what the graph shows us, but we don't have enough information to decide on any of a. thru d. above.
1. Use the analysis for the market for loanable funds diagram to illustrate and explain how the followinggovernment policy affect the economy’s saving and investment. Policy 1: Suppose the government startswith a balanced budget and then, because of a tax cut or spending increase, starts running a budgetdeficit.For your answer state and explain(i) which which loanable funds curve would this policy affect?(ii) which way would the loanable funds curve shift?(iii) what would be the the impact on interest rates?
7. Saving/Investment again--- Suppose the government borrows $20 billion more next year than this year. The following graph shows the market for loanable funds before the additional borrowing for next year. Use the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more next year than this year. Interest Rate (Percent) 10 Demand 9 7 X 3 8 bo ch 2 19 1 0 0 10 20 30 40 50 60 70 80 Loanable Funds (Billions of dollars) As a result of this policy, the equilibrium interest rate Supply The more elastic the supply of loanable funds, the 90 100 New Supply ? Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. National saving decreases by more than $20 billion. Private saving decreases by less than $20 billion. Investment decreases by less than $20 billion. Public saving decreases by exactly $20 billion. is the change in national saving as a…
Refer to the figure below to answer the following questions. Real interest rate (percent per year) 10 DLF 150 300 450 600 750 900 Loanoble funds (billions of 2007 dollars) Figure 7.2.3 In Figure 7.23, when the real interest rate is 6 percent, the quantity of loanable funds demanded is Select one: O A $150 billion. O B. $450 billion. O C $600 billion. O D. $300 billion. O E. any amount less than $450 billion.
1. In France and Germany, it is difficult for a household to increase its borrowing based on an increase in the market value of the house. In addition, large down-payments (as a percentage of the house price) are required for house purchases. a. On the basis of this information, how would you expect a rise in house prices in France or Germany to affect spending by households? b. In the US or UK, loans are more easily available based on a rise in home equity and only a small down- payment is required. How would you expect your answer to question 1 to change when considering the US or UK? c. What do you conclude about the role of the financial accelerator in France and Germany compared with the UK and the US?
Figure 32-1 percent 8 10 20 30 40 50 60 70 $billions Refer to Figure 32-1. In the Figure shown, if the real interest rate is 6 percent, the quantity of loanable funds demanded is O A. $20 billion, and the quantity supplied is $40 billion. O B. $20 billion, and the quantity supplied is $60 billion. O C. $60 billion, and the quantity supplied is $20 billion. O D. $60 billion, and the quantity supplied is $40 billion.