Suppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) Is this statement true, false or uncertain? Please provide your explaination.

Suppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) Is this statement true, false or uncertain? Please provide your explaination.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 9P

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Suppose the government has a budget surplus of $50 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, private saving, public saving, and national saving? Hint: Use diagram or equation to illustrate. c) How does the elasticity of supply of loanable funds affect the size of these changes? Hint: Use a diagram to illustrate. d) How does the elasticity of demand for loanable funds affect the size of these changes? Hint: Use a diagram to illustrate. e) Suppose households believe that smaller government borrowing today implies ower 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 affects you discussed in parts (a) and (b)?
• Draw a correctly labeled graph of the loanable funds market. Label the equilibrium interest rate r1 and the quantity of loanable funds Qlf1. There is a figure in your textbook that you can use as a guide • Suppose the government borrows money to finance additional government spending. Which curve will be affected by the increased government borrowing and which direction will the curve shift? Show the effect on your graph above and label the new equilibrium quantity Qlf2 and the new equilibrium interest rate r2.
The table shows an economy's demand for loanable funds and supply of loanable funds schedules when the government's budget is balanced. The quantity of loanable funds demanded increases by $2.0 trillion at each real interest rate and the quantity of loanable funds supplied increases by $1.0 trillion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 trillion, what are the real interest rate, the quantity of loanable funds, investment, and saving? >>> Answer to 1 decimal place. Real interest rate (percent per year) Loanable funds Loanable funds demanded supplied (trillions of 2012 dollars per year) 4 7.5 6.5 5 7.0 7.0 6 6.5 7.5 7 6.0 8.0 8 5.5 8.5 9 5.0 9.0 10 4.5 9.5 The real interest rate is 7 percent a year. The quantity of loanable funds is $ trillion, investment is $ trillion, and saving is $ trillion.
Suppose Indian government borrows 50,000/- more next year than this year. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the 50,000/- of extra government borrowing.
The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place. The real interest rate is C ... percent a year. Investment is $ billion. There crowding out in this situation because O A. is; OB. is no; the deficit increases the real interest rate, which decreases investment investment is $6.5 billion. Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds supplied demanded (billions of 2007 dollars) 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.5 5.0 5.5 6.0 6.5 7.0 7.5
Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise.
Suppose the GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. assuming this economy is closed, calculate consumption, government purchases national saving, and investment. b. imagine that government start with a balanced budget and then, because of an increase in taxes, start running a budget surplus. graphically analyze the effects of the budget surplus on interest rate, saving and investment if loanable funds means the flow of resources available from private saving
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) I Demand LOANABLE FUNDS (Billions of dollars) Supply Demand Supply *
Derive analytically and graphically the solution of the income-expenditure model, with only households and firms, by focusing on the equilibrium in the bonds' market. What is the effect on saving (S) generated by an increase in the marginal propensity to save (s)? Explain.
According to how we model the Loanable Funds market in Ch. 6 (considering household savings and taking (T – G) as government’s net ‘saving,’ which could be negative it there were a budget deficit), which of the following shifts the Supply of Loanable Funds curve to the left? (T = taxes; G = government spending.) Group of answer choices A) higher tax rates on business investment spending B) a change in tastes toward consuming less C) higher budget deficit D) change in tastes toward saving more E) lower budget deficit
Use the following information for all of the questions in this Check Point: Y $14 trillion C= $8 trillion | = $3 trillion TR = $1 trillion T= $3 trillion Enter your answers as whole numbers only (no decimals, no $). For example, if the answer is $7 trillion, you would only enter 7 as your a Question 1 What would government purchases be equal to? $ trillion. Question 2 What would private saving be equal to? $ trillion. Question 3 What would public saving be equal to? $ trillion.
Give written answer with explanation and conclusion A government policy that would reduce the saving rate is ? a) giving tax breaks to increase the real return that savers receive b) eliminating the social security system c) increasing the government budget surplus by cutting government spending d) switching the tax system to tax consumption instead of income