Homework Help is Here – Start Your Trial Now!
Business
Economics
The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) LOANABLE FUNDS (Billions of dollars) Supply Demand Demand Supply

The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) LOANABLE FUNDS (Billions of dollars) Supply Demand Demand Supply

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
ChapterST5: The Great Recession Of 2008-2009: Causes And Response
Section: Chapter Questions
Problem 4CQ
See similar textbooks
icon
Related questions
Question
Please answer everything in the photos.
The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) LOANABLE FUNDS (Billions of dollars) Supply Demand Oma Demand - Supply
Transcribed Image Text:The following graph shows the loanable funds market. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Consider each scenario separately by returning the graph to its starting position when moving from one scenario to the next. (Note: You will not be graded on any changes you make to the graph.) INTEREST RATE (Percent) LOANABLE FUNDS (Billions of dollars) Supply Demand Oma Demand - Supply
Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 18%. Now suppose there is a decrease in the tax rate on interest income, from 18% to 14%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to spending to Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to This change in spending causes the government to run a budget Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. Shift the appropriate curve on the graph to reflect this change. and the level of saving to This causes the interest rate to which and the level of investment the level of investment spending. national saving.
Transcribed Image Text:Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 18%. Now suppose there is a decrease in the tax rate on interest income, from 18% to 14%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to spending to Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital within some relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to This change in spending causes the government to run a budget Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. Shift the appropriate curve on the graph to reflect this change. and the level of saving to This causes the interest rate to which and the level of investment the level of investment spending. national saving.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 3 images

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Market for loanable funds
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Economics: Private and Public Choice (MindTap Cou…
Economics: Private and Public Choice (MindTap Cou…
Economics
ISBN:
9781305506725
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Microeconomics: Private and Public Choice (MindTa…
Microeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506893
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Macroeconomics: Private and Public Choice (MindTa…
Macroeconomics: Private and Public Choice (MindTa…
Economics
ISBN:
9781305506756
Author:
James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:
Cengage Learning
Economics Today and Tomorrow, Student Edition
Economics Today and Tomorrow, Student Edition
Economics
ISBN:
9780078747663
Author:
McGraw-Hill
Publisher:
Glencoe/McGraw-Hill School Pub Co
SEE MORE TEXTBOOKS