Exploring Macroeconomics
8th Edition
ISBN: 9781544337722
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 13, Problem 9P
To determine
(a)
To explain:
The effect on the loanable funds
To determine
(b)
To explain:
The effect on the loanable funds supply and demand curves if there is decrease in disposable income and new technologies are invented.
To determine
(c)
To explain:
The effect on the loanable funds supply and demand curves if there is increase in investment taxes and decrease in savings.
To determine
(d)
To explain:
The effect on the loanable funds supply and demand curves if costly business regulations are levied and there is increase in current earnings taxes.
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Chairman Latrobe, the Supreme Leader of Rolling Rock decided to increase the personal tax rate to fund the defense force.
8) How may this affect the loanable funds market? Explain by describing the change in the demand for, or the supply of, loanable funds.
9) Because of the change decreed by President Thug and your answer to question 8, what is likely to happen to the interest rate and the quantity of funds in the loanable funds market?
10) How will each of these Rolling Rockers feel about President Thug’s decision?
(A) Investor Confidence
(B) The President of Rolling Rock National Bank
What is the effect of a fall in the real interest rate on the demand for loanable funds?
A fall in the real interest rate _______.
A.
decreases the demand for loanable funds and shifts the demand curve leftward
B.
decreases the quantity of loanable funds demanded up along the demand curve
C.
increases the demand for loanable funds and shifts the demand curve rightward
D.
increases the quantity of loanable funds demanded down along the demand curve
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Construct the market for loanable funds and use it to illustrate and explain each of the following:a) How an increase in the government budget deficit will affect equilibrium interest rate and investment spending of firms, other factors constantb) How an increase in household savings as they become more financial literate will affect equilibrium interest rate and investment spending of firms, other factors constantc) How an increase in business confidence will affect equilibrium interest rate and investment spending of firms, other factors constant.
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- What is the effect of a fall in the real interest rate on the demand for loanable funds? A fall in the real interest rate _______. A. increases the quantity of loanable funds demanded down along the demand curve B. decreases the quantity of loanable funds demanded up along the demand curve C. decreases the demand for loanable funds and shifts the demand curve leftward D. increases the demand for loanable funds and shifts the demand curve rightwardarrow_forwarduse the analysis for the market of loanble funds to illustrate and explain how the following government policy affect the economy's savings and investment. Policy 1: Suppose the government changes its tax code allowing individuals to reduce their taxable income if they save money in registered retirement savings plan. a. State and explain which loanable funds curve would this policy affect? b. What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.arrow_forwardHow does an increase in disposable income change the equilibrium in the loanable funds market? An increase in disposable income _______ the equilibrium real interest rate and _______ the equilibrium quantity of loanable funds. A. raises; increases B. lowers; increases C. raises; decreases D. lowers; decreasesarrow_forward
- Think about factors that may shift the demand for loanable funds. Sort the following scenarios into one of three possibilities: (i) Demand increases, (ii) Demand decreases, or (iii) Demand does not change. Items (5 items) (Drag and drop into the appropriate area below) Expected returns from capital investment increase Categories Government borrowing falls. Demand increases Drag and drop here Interest rates rise. Firms become more optimistic about the future. Demand decreases Drag and drop here Household incomes rise. No change in demand Drag and drop herearrow_forwardQUESTION 10 Suppose a new tax bill has just been passed that raises taxes for the majority of people in a country. As a result of the tax increase, explain how interest rates will be affected using the loanable funds theory. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac). B I U S Paragraph Arial 14px A v Ix X O 8 OQ x2 X, +, RBC 田用区 因arrow_forwardCollaboration with Congress during the Clinton Administration allowed for an aggressive deficit-cutting plan to pass. As a result, the government was able to reach a balanced budget at the end of the 90's. Move the supply and/or demand curves to describe the expected effect that this deficit-reduction likely had upon the loanable funds market. As a result, private investment should have a) decreased as the cost of borrowing increased. b) increased as the cost of borrowing increased. c) increased because the cost of borrowing decreased. d) decreased as the cost of borrowing decreased.arrow_forward
- Show graphically and explain how an increase in household confidence about future income affects the loanable funds marketarrow_forwardThe supply and demand curves for loanable funds are affected by different factors. Classify each event according to which curve shifts, if any, and the direction of the shift. an increase in tax breaks a decrease in the productivity of capital an increase in the real interest rate an increase in investor confidence an increase in life expectancy a decrease in the government budget surplus increase in the demand for loanable funds increase in the demand for loanable funds neither curve shifts increase in the demand for loanable funds increase in the supply of loanable funds increase in the demand for loanable funds Answer Bank increase in the supply of loanable funds increase in the demand for loanable funds decrease in the supply of loanable funds decrease in the demand for loanable funds neither curve shiftsarrow_forwardWhat is market for loanable funds? Use the analysis of market for loanable fund to analyse the impact of saving incentives and government budget (deficits) toward the interest rate and quantity of loanable funds! (Explain your answer by using graphical approach)arrow_forward
- Figure 26-3. The figure shows two demand-for-loanable-funds curves and two supply-of-loanable-funds curves. S2 D2 D1 Refer to Figure 26-3. A shift of the supply curve from S1 to S2 is called a decrease in the quantity of loanable funds supplied. an increase in the supply of loanable funds. an increase in the quantity of loanable funds supplied. a decrease in the supply of loanable funds. B.arrow_forwardUse the analysis for the market for loanable funds diagram to illustrate and explain how thefollowing government policy affect the economy’s saving and investment. Policy 1: Suppose thegovernment changes the tax code, allowing individuals to reduce their taxable income if they savemoney in registered retirement savings plans (RRSPs). Your response should answer the following questions:a. State and explain which loanable funds curve would this policy affect? b. Which way would the loanable funds curve shift? c. What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.arrow_forwardlist the factors that affect the demand side of the loanable funds market. which factors shift the curve?arrow_forward
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