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 10.2.17PA
Sub part (a):
To determine
Effect of budget surplus.
Sub part (b):
To determine
Effect of budget surplus.
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The table shows an economy's demand for loanable funds and supply of loanable funds
schedules when the government's budget is balanced.
The quantity of loanable funds demanded increases by $2.0 trillion at each real interest rate and
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If, at the same time the government budget becomes a deficit of $1.0 trillion, what are the real
interest rate, the quantity of loanable funds, investment, and saving?
>>> Answer to 1 decimal place.
Real
interest rate
(percent
per year)
Loanable funds
Loanable funds
demanded
supplied
(trillions of 2012 dollars per year)
4
7.5
6.5
5
7.0
7.0
6
6.5
7.5
7
6.0
8.0
8
5.5
8.5
9
5.0
9.0
10
4.5
9.5
The real interest rate is 7 percent a year.
The quantity of loanable funds is $ trillion,
investment is $ trillion, and saving is $ trillion.
On the following graph, show the impact of the increase in government purchases on the interest rate by shifting one or both of the curves.
Supply
X
Demand
2
10
20
30
40
50
QUANTITY OF LOANABLE FUNDS (Billions of dollars)
12
IN TEREST RATE
10
0
0
60
ģ
Demand
Supply
?
Suppose that for each one-percentage-point increase in the interest rate, the level of investment spending declines by $1.25 billion.
by
According to the change you made to the loanable funds market in the previous scenario, the increase in government purchases causes the interest
rate in the money market to from 6% to
%. The change in the interest rate causes the level of investment spending to
$
billion.
by
After the multiplier effect is accounted for, the change in investment spending will cause the quantity of output demanded to
$
billion at each price level. The impact of an increase in government purchases on the interest rate and the level of investment
spending is known as the
effect.
Place the purple line (diamond…
The following graph shows the demand for loanable funds and the supply of loanable funds in the United States. At the current equilibrium, the
government is experiencing a balanced budget. Assume that the U.S. government bails out several troubled banks without increasing taxes, creating a
budget deficit.
Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both.
D
S
INTEREST RATE
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F3
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F4
C
D
F5
a
F6
N
F7
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F8
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F9
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F12
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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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