Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 13, Problem 8PA
(a):
To determine
The impact of increased borrowings by the government analyzed by supply and
(b):
To determine
The impact of increased borrowings by the government.
(c):
To determine
The impact of increased borrowings by the government with elasticity of supply of loanable fund.
(d):
To determine
The impact of increased borrowings by the government with
(e):
To determine
The impact of increased borrowings by the government with private saving.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Suppose the government borrows $20 billion more next year than this year,a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.c. How does the elasticity of supply of loanable funds affect the size of these changes?d. How does the elasticity of demand for loanable funds affect the size of these changes?e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?
Suppose the government borrows $20 billion more next year than this year.
a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?
b. What happens to investments?To private savings?To public savings?To national savings? Compare the size of the changes to the $20 billion of extra government borrowing.
c.How does the elasticity of supply of loanable funds affect the size of these changes?
d. How does the elasticity of demand of loanable funds affect the size of these changes?
Suppose the government borrows $50 billion more next year
than this year.
a. Use a supply-and-demand diagram to analyze this policy.
Does the interest rate rise or fall?
b. What happens to investment? To private saving? To public
saving? To national saving? Compare the size of the
changes to the $50 billion of extra government borrowing,
C, see the attached picture.
Chapter 13 Solutions
Principles of Macroeconomics (MindTap Course List)
Knowledge Booster
Similar questions
- Suppose Indian government borrows 50,000/- more next year than this year. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the 50,000/- of extra government borrowing.arrow_forwardPlease assist with questions below in detailed manner.arrow_forwardIn the graph you've just made, what is the level of private saving when the government has a $1 trillion budget deficit? A. $2.5 trillion B. $2.0 trillion C. $1.5 trillion Thanks! Screenshot attachedarrow_forward
- Suppose the government has a budget surplus of $50 billion more next year than this year. a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? b) What happens to investment, private saving, public saving, and national saving? Hint: Use diagram or equation to illustrate. c) How does the elasticity of supply of loanable funds affect the size of these changes? Hint: Use a diagram to illustrate. d) How does the elasticity of demand for loanable funds affect the size of these changes? Hint: Use a diagram to illustrate. e) Suppose households believe that smaller government borrowing today implies ower taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the affects you discussed in parts (a) and (b)?arrow_forwardThe 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 graph to 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 budgetdeficit on the market for loanable funds. c. How would your conclusion differ if taxpayers fully anticipate future tax increases tooffset the increase in the budget deficit? d. Do you think the Ricardian Equivalence is realistic?arrow_forwardWhat is the likely effect of a substantial increase in government borrowing on the private investment in an economy? A. Private investment will increase due to more government spending. B. Private investment will decrease due to the crowding-out effect. C. Private investment will remain unchanged as government borrowing does not affect private sectors. D. Private investment will first decrease, then increase as government spending stimulates the economy.arrow_forward
- 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?arrow_forwardThe 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 consumers will be affected if the budget deficit increases to $250 billion per year. Draw a graph to show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interest due to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds.arrow_forwardThe 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 the quantity of loanable funds supplied increases by $1.0 trillion at each interest rate. 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.arrow_forward
- Only answer d and e in relation to the question.arrow_forwardPlease answer all the questions below and give a detailed solution. Please double-check before submitting the answer.Fill In The Blank Options Left to Right Top to Bottom:Saving or Investmentdecreases or increasesgreater or lesssurplus or shortageraise or lowerincreasing or decreasingincreasing or decreasingarrow_forwardThe table sets out the data for an economy when the government's budget is balanced. Real Loanable funds Loanable funds interest rate If the government's budget becomes a deficit of $1.0 billion, what are the real demanded supplied (percent per year) interest rate and investment? (billions of 2007 dollars) 4 7.5 4.5 Does crowding out occur? 7.0 5.0 6.5 5.5 ..... If the government's budget becomes a deficit of $1.0 billion, the real interest rate is 7 6.0 6.0 percent a year and the quantity of investment is $ >>> Answer to 1 decimal place. billion. 8 5.5 6.5 9. 5.0 7.0 10 4.5 7.5arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Essentials of Economics (MindTap Course List)EconomicsISBN:9781337091992Author:N. Gregory MankiwPublisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...EconomicsISBN:9781337091985Author:N. Gregory MankiwPublisher:Cengage Learning
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Essentials of Economics (MindTap Course List)
Economics
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Brief Principles of Macroeconomics (MindTap Cours...
Economics
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc