Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 10, Problem 10.2.10PA
Sub part (a):
To determine
The loanable market.
Sub part (b):
To determine
Sub part (c):
To determine
Supply and interest rate in loanable market.
Sub part (d):
To determine
Shift in demand in loanable market.
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Students have asked these similar questions
#18. What would happen in the market for loanable funds if the government were to increase the tax on interest income?
a
The supply of loanable funds would shift right.
b
The demand for loanable funds would shift right.
c
The supply of loanable funds would shift left.
d
The demand for loanable funds would shift left.
3.3 Explain and show graphically how an increase in household saving affects the equilibrium interest
rate and the equilibrium quantity of loanable funds.
3.4 Explain and show graphically how an increase in expected profits from firm investment projects
affects the equilibrium interest rate and the equilibrium quantity of loanable funds.
3.5 Explain and show graphically how an increase in government spending (i.e. budget deficit) affects
the equilibrium interest rate in the market for loanable funds.
1. Using the market for loanable fund diagram, show graphically and explain how the interest rate and investment are affected in each of the following cases. (Draw a separate diagram for each.)i. Tax on interest income decreases.ii. Government is running a budget surplus.iii. Investment tax credit falls.
Chapter 10 Solutions
Macroeconomics (7th Edition)
Ch. 10 - Prob. 10.1.1RQCh. 10 - Prob. 10.1.2RQCh. 10 - Prob. 10.1.3RQCh. 10 - Prob. 10.1.4RQCh. 10 - Prob. 10.1.5PACh. 10 - Prob. 10.1.6PACh. 10 - Prob. 10.1.7PACh. 10 - Prob. 10.1.8PACh. 10 - Prob. 10.1.9PACh. 10 - Prob. 10.1.10PA
Ch. 10 - Prob. 10.1.11PACh. 10 - Prob. 10.1.12PACh. 10 - Prob. 10.1.13PACh. 10 - Prob. 10.1.14PACh. 10 - Prob. 10.2.1RQCh. 10 - Prob. 10.2.2RQCh. 10 - Prob. 10.2.3RQCh. 10 - Prob. 10.2.5PACh. 10 - Prob. 10.2.6PACh. 10 - Prob. 10.2.7PACh. 10 - Prob. 10.2.8PACh. 10 - Prob. 10.2.9PACh. 10 - Prob. 10.2.10PACh. 10 - Prob. 10.2.11PACh. 10 - Prob. 10.2.12PACh. 10 - Prob. 10.2.13PACh. 10 - Prob. 10.2.14PACh. 10 - Prob. 10.2.15PACh. 10 - Prob. 10.2.17PACh. 10 - Prob. 10.3.2RQCh. 10 - Prob. 10.3.3RQCh. 10 - Prob. 10.3.4PACh. 10 - Prob. 10.3.5PACh. 10 - Prob. 10.3.6PACh. 10 - Prob. 10.3.7PACh. 10 - Prob. 10.3.8PACh. 10 - Prob. 10.3.9PACh. 10 - Prob. 10.1RDECh. 10 - Prob. 10.2RDECh. 10 - Prob. 10.3RDECh. 10 - Prob. 10.2CTE
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Similar questions
- 1. In the model of the market for loanable funds, which of the following best describes why the supply curve is upward sloping? a The higher the interest rate, the more likely households are to spend b The higher the interest rate, the less likely firms are invest c The higher the interest rate, the more likely households are to borrow d The higher the interest rate, the more likely households are to savearrow_forward2. According to the textbook, which of the following statements is (are) correct? (x) The price of loanable funds is the interest rate and the interest rate is determined by the forces of supply and demand in the loanable funds market. (y) The supply of loanable funds slopes upward because an increase in the interest rate provides an incentive for people to save more. (z) The demand for loanable funds slopes downward because a decrease in the interest rate provides an incentive for people to borrow more. A. (x), (y) and (z) B. (x) and (y) only C. (x) and (z) only D. (y) and (z) only E. (x) only 4. Suppose a surplus of loanable funds exists at the present interest rate in the loanable funds market. Given the presence of this disequilibrium, A. the supply of loanable funds will shift to the right and the demand will shift to the left. B. the supply of loanable funds will shift to the left and the demand will shift to the right. C. both the supply of loanable funds and the demand will…arrow_forwardRecently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase.arrow_forward
- Recently, the economies of North Korea and Norway have begun to grow very rapidly. This increases their citizens’ income and wealth as well. In turn, these citizens increase their savings not only in their country, but also in the United States. In this case, which of the following statements is correct? A. The supply of loanable funds decreases as savings increase. B. The supply of loanable funds increases as savings increase. C. The demand of loanable funds decreases as savings increase. D. Both supply and demand of loanable funds increase as savings increase. Clear my choicearrow_forwardThe table sets out data for an economy when the government's budget is balanced. Real interest rate (percent per year) 4. Loanable funds demanded (billions of 2007 dollars) Loanable funds supplied (billions of 2007 dollars) 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.5 6.0 6.5 7.0 7.5 8.0 8.5 6. 7. 8 9. 10 a) Calculate the equilibrium real interest rate, investment, and private saving. b) If planned saving increases by $0.5 billion at each real interest rate, explain the change in the real interest rate. c) If planned investment increases by $1 billion at each real interest rate, explain the change in the real interest rate. d) If the government's budget becomes a deficit of $1 billion, what are the real interest rate and investment? Does crowding out occur? e) If the government's budget becomes a deficit of $1 billion and the Ricardo-Barro effect occurs, what are the real interest rate and the investment?arrow_forwardMacroeconomics referred to picture of Graph to answer questions fill in the blanks The Market for Loanable Funds II. Other things being equal, a decrease in taxes on savings and investment income will shift____ to the ____and_____interest rate. a. supply; right; decrease b. demand; right; increase (incorrect answer) c. demand; left; decrease d. supply; left; increasearrow_forward
- 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.arrow_forwardUse 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?arrow_forward7- We have the following data from the loanable funds market for Berberistan. Answer the following questions. Real interest rate Loanable funds Loanable funds supplied (trillions of dollars) demanded (percent per year) 3 10 4 4 5 8. 6. 6. 7 7 7 8 9. 9 4 10 a) What is the equilibrium real interest rate, total private saving and investment? (suppose that the government budget is balanced.) b) What will be the equilibrium real interest rate if the government's budget becomes a deficit of $2 trillion? What will be the private investment at the new equilibrium? Define "crowding-out" and tell if there is crowding-out in this case.arrow_forward
- Use the loanable funds market to illustrate the effect of the following events on the equilibrium. Illustrate the effects on the interest rate and quantity of investment-savings a) The proportion of retired people in the population goes up. Think that usually retired people generally save less than working people at any interest rate. b) At any given interest rate, consumers decide to save more (assume the budget balance is zero). c) At any given interest rate, businesses become very optimistic about the future profitability of investment spending (assume the budget balance is zero).arrow_forwardPatrick wants to start his own dental practice, but his expenditures exceed his income. Which statement best describes Patrick? a. He is a saver who demands loanable finds from the financial system. b. He is a saver who supplies loariable funds to the financial system c. He is a borrower who demands loanable funds from the financial system. d. He is a borrower who supplies loanable funds to the financial systemarrow_forward7 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.arrow_forward
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