Use the analysis for the market for loanable funds diagrams to examine and explain both in words anddiagrammatically how the following government policy affect the economy’s saving and investment.Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firmbuilding a new factory or buying a new piece of equipment
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Use the analysis for the market for loanable funds diagrams to examine and explain both in words and
diagrammatically how the following government policy affect the economy’s saving and investment.
Policy
1: Suppose the government passed a tax reform giving an investment tax credit to any firm
building a new factory or buying a new piece of equipment
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- Use the analysis for the market for loanable funds diagrams to examine and explain both in words anddiagrammatically how the following government policy affect the economy’s saving and investment.Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firmbuilding a new factory or buying a new piece of equipment.Use the analysis for the market for loanable funds diagrams to examine and explain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1 Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affects the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit.State, explain and draw the loanable funds diagram for i,ii and iii. (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 1) Suppose that the government spending decreases. Use the model of loanable funds in a closed economy to explain clearly what happens to the quantity of national savings, public savings, private savings, investment, consumption, and the interest rate: Illustrate the answer with the appropriate graph.↑ Match each of the following scenarios with the appropriate graph of the market for loanable funds. NEAL Loanable funds Loanable funds 292 D₁ D₂ Loanable funds Loanable funds a. An increase in the real interest rate results in only a small increase in private saving by households. This matches graph b. A decrease in the real interest rate results in a substantial increase in spending on investment projects by businesses. This matches graph c. The federal government eliminates RRSPs and TFSAS (tax-deductible retirement accounts). This matches graph d. The federal government reduces the tax on corporate profits. (Assume no change in the federal budget deficit or budget surplus.) This matches graphHow does an increase in disposable income change the equilibrium in the loanable funds market? An increase in disposable income _______ the equilibrium real interest rate and _______ the equilibrium quantity of loanable funds. A. raises; increases B. lowers; increases C. raises; decreases D. lowers; decreases
- d. In order to finance the increase in government spending on national defense from part (b), the government borrows funds from the public. Using a correctly labeled graph of the loanable funds market, show the effect of the government’s borrowing on the real interest rate. e. Given the change in the real interest rate in part (d), what is the impact on each of the following? Investment Economic growth rate. Explain.1) In the loanable funds market model, assuming everything else is constant, which curve (supply of funds or demand for funds) is affected if there is an increase in national saving? How will equilibrium real interest rate and equilibrium quantity of loans change as a result?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 9 0 Demand 10 20 30 40 50 60 70 80 Loanable Funds (Billions of dollars) Supply As a result of this policy, the equilibrium interest rate rises 90 100 Public saving decreases by less than $20 billion. National saving decreases by less than $20 billion. Private saving increases by less than $20 billion. Investment decreases by more than $20 billion. The more elastic the demand for loanable funds, the Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. New Supply A more elastic supply of loanable funds would result in national saving changing by This belief would cause people to save This would ? as a result of the increase in government borrowing. the change in national saving as a result of the increase in government…
- Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affect the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. (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?QUESTION 7 Use the following diagram to answer this question The accompanying graph shows the market for loanable funds in equilibrium. Interest rate (%) 12 10 8 6 4 2 0 S E X 2 D 3 4 6 5 Quantity of loanable funds (trillions of dollars) Which of the following might produce a new equilibrium interest rate of 2% and a new equilibrium quantity of loanable funds of $1 trillion? OA. Consumers have increased consumption as a fraction of disposable income. OB. Businesses have become more pessimistic about the future and, as result; they plan to cut back on their spending. OC. The federal government has a budget surplus rather than a budget deficit. OD. The federal government has a budget deficit rather than a budget surplus. uhmit. Click Save All Answers to save all answers.Q2. Suppose that Congress passed a tax reform aimed at making investment more attractive, which is called an investment tax credit. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new piece of equipment or machines. a. In the market for loanable funds, graph and explain the effects on the equilibrium real interest rate and the quantity of loanable funds? b. What happens to the quantity of saving and investment?