Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 8SPPA
To determine
To explain:
The impact by the budget surplus in Germany on the loanable funds market and on the
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Use 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?
Textbook: Macroeconomics by P. Krugman & R. Wells (5th Edition)
Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of percentage points in the expected future inflation rate. How will the change in the expected future inflation rate affect the equilibrium quantity of loanable funds?
Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affect 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.
(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?
Chapter 26 Solutions
Foundations of Economics (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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- Draw the graph of the effect on the equilibrium in the loanable funds market when corporate taxes increase. Does the demand for loanable funds increase or decrease? Does the interest rate increase of decrease?arrow_forward(Figure: Loanable Funds Expansion) Which of the following reasons could cause the demand curve for loanable funds to shift to the right from DLF to D'LF in the figure? SLF 1₁ 10 Qo Q₂ DLF S'LF •D¹LF QLF The economy is expected to boom, thereby increasing investment returns. Rising interest rates make it more attractive for savers to save. Larger investment projects with potentially higher returns get funded. Falling interest rates make it less expensive for firms to borrow. ►arrow_forwardThe 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 automobile industry is on the verge of bankruptcy and the U.S. government decides to implement a several-billion-dollar bailout plan without a rise in taxes, causing a budget deficit. 1. 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. (Please use the image attached) 2. Based on this model, the budget deficit leads to an increase? a decrease? in the level of investment and an increase? a decrease? in the interest rate.arrow_forward
- Homework (Ch 23) 5. Impact of budget deficits The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the financial industry is close to bankruptcy and the U.S. government decides to implement a bailout plan of several billion dollars without increasing taxes, causing 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. INTEREST RATE LOANABLE FUNDS Based on this model, the budget deficit leads to D $ 6 m D/ in the level of investment and in the interest rate.arrow_forwardAn economy's saving rate increased from -0.1 percent in 2015 to 2.0 percent in 2016 to 2.4 percent in 2017, to 2.9 percent in 2018, and to 3.0 percent in 2019. Explain why the saving rate might have increased and its effect on the supply of loanable funds. The saving rate might have increased because The increase in the saving rate will the supply of loanable funds. A. financial market turmoil could decrease wealth and expected future income; increase B. the demand for loanable funds could have decreased; decrease C. financial market turmoil always increases wealth and expected future income; increase D. financial market turmoil could decrease wealth and expected future income; decrease O E. the demand for loanable funds could have decreased; increase Click to select your answer. javascript:doExercise(13); esc 吕0 888 F1 F2 F3 F4 F5 F6 F7 F8 F9 F10 ! @ # 2$ & 1 2 3 4 5 7 8 Q W E Y tab Tarrow_forwardDraw a graph to illustrate the effect of an increase in the demand for loanable funds and an even larger increase in the supply of loanable funds on the equilibrium quantity of loanable funds and the real interest rate.arrow_forward
- 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 Thanks!arrow_forwardc. If the Federal Reserve sells government bonds, show what will happen to this graph. Explain the effects on interest rates and the quantity of loanable fundsarrow_forwardScenario 1: The economy enters a recession driving down the demand for homes nationwide. What is the expected impact on the demand for loanable 2. What effect will this change have on the interest rate? 1. 3. How will this change the behavior of consumers? Scenario 2: The government increases deficit spending by $100 Billion dollars to invest in green energy throughout the country. 1. What effect will this have on the demand for loanable funds? Increases the demand. 2. What effect will this change have on the interest rate? The interest rate will also increases because when the demand increases the interest rate also increases. 3. How willl this change the behavior of consumers?arrow_forward
- 4 Long Run Economic Growth and Loanable Funds Market (Chapters 10 and 11) 4.1 If real GDP in a small country in 2017 is $8 billion and real GDP in the same country in 2018 is $8.3 billion, the growth rate of real GDP between 2017 and 2018. Show your work 4.2 If real GDP per capita doubles between 2005 and 2020, what is the average annual growth rate of real GDP per capita? Show your work 4.3 Explain and show graphically how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds 4.4 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 4.5 Explain and show graphically how an increase in government spending (ie. budget deficit) affects the equilibrium interest rate in the market for loanable fundsarrow_forwardUse the analysis for the market for loanable funds diagrams to examine and explain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1 Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.arrow_forwardFigure 1. On the horizontal axis of the graph, L represents the quantity of loanable funds in billions of dollars. 896 696 $50 $62 Supply L Refer to Figure 1. Which of the following events could explain a shift of the demand-for-loanable- funds curve from D₁ to D₂? The tax code is reformed to encourage greater saving. The tax code is reformed to encourage greater investment. The government starts running a budget deficit. The government starts running a budget surplus.arrow_forward
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