(Figure: The Market for Loanable Funds III) Use Figure: The Market for Loanable Funds III. Suppose the government in a closed economy finances deficits by selling bonds. If it decreases defense spending by $200 billion, the equilibrium interest rate will: Interest rate (%) 30 27 24 21 18 15 12 3222222 6 63 E 0 200 S D 400 600 800 1,000 1,200 Quantity of loanable funds (billions of dollars) rise to 18%. not change. fall to 13.5%. fall to 12%.

(Figure: The Market for Loanable Funds III) Use Figure: The Market for Loanable Funds III. Suppose the government in a closed economy finances deficits by selling bonds. If it decreases defense spending by $200 billion, the equilibrium interest rate will: Interest rate (%) 30 27 24 21 18 15 12 3222222 6 63 E 0 200 S D 400 600 800 1,000 1,200 Quantity of loanable funds (billions of dollars) rise to 18%. not change. fall to 13.5%. fall to 12%.

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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Similar questions

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Economics The table shows an economy's demand for loanable funds schedule and supply of loanable funds schedule when the government's budget is balanced Real interest rate Loanable funds demanded Loanable funds supplied (percent per year) (trillions of 2010 dollars) (trillions of 2010 dollars) 3 12 6 11 10 9 9 7 8 10 11 If the Ricardo-Barro effect occurs, and if the government budget deficit is $2 trillion, the real interest rate is percent year and the quantity of investment is trillion. O A. 7.0, $8.0 O B. 7.0; $10 0 OC. 5.0; $10.0 OD. 6.0, $9.0
Figure: Loanable Funds Interest rate 9 S Reference: Ref 10-7 D $100 Quantity of loanable funds (billions of dollars) (Figure: Loanable Funds) Look at the figure Loanable Funds. Which of the following might produce a new equilibrium interest rate of 8% and a new equilibrium quantity of loanable funds of $75 billion? O Capital inflows from foreign citizens decline. O The federal government runs a budget deficit rather than a surplus. O Profit expectations for business investments become less optimistic. O The government eliminates taxes on income from interest earned.
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5) The government is running a budget balance of zero when it decides to increase national defense spending by $400 billion and finance the spending by selling bonds, so it now runs a $400B deficit. The accompanying diagram shows the market for loanable funds before the government sells the bonds. Assume that there are no capital inflows or outflows. How will the equilibrium interest rate and the equilibrium quantity of loanable funds change? Is there any crowding out in the market? Answer the questions in the following boxes Interest rate 24% 22 20 18 16 14 12 10 8 6 4 2 0 S D 800 1,000 1,200 $200 400 600 Quantity of loanable funds (billions of dollars) a. New Interest Rate b. New Quantity of investment c. Amount of crowding out. If none, write N/A II