Providing tax shelters through investment is one of the main functions of the financial system. *   Is it true or false?

The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumerswill be affected if the budget deficit increases to $250 billion per year. Draw a graphto show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interestdue to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds. c. How would your conclusion differ if taxpayers fully anticipate future tax increases to offset the increase in the budget deficit? d. Do you think the Ricardian Equivalence is realistic?

Explain how accounting is used to track and monitor economic events that impact capital markets

3. According to an article on the junk bond market in Europe published in the Economist in 2016, "The spread (the interest premium over government borrowing rates) paid by junk-bond issuers has risen by nearly three-and-a-half percentage points since March last year." (a) How can you tell whether a newly issued bond is a junk bond? (b) Why would the spread between government bonds and junk bonds have been rising? (c) Does this increase in the spread make junk bonds a better or a worse investment compared with buying government-issued bonds? Briefly explain.