LOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. Budget deficits decrease national saving. Budget deficits place a burden on future taxpayers. Budget deficits crowd out private investment. Budget deficits increase national saving. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 3%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.

LOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might an advocate of a balanced budget make in support of his position? Check all that apply. Budget deficits decrease national saving. Budget deficits place a burden on future taxpayers. Budget deficits crowd out private investment. Budget deficits increase national saving. Proponents of a balanced budget argue that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily the case. They argue that what matters is the size of the debt relative to the nation's income. For example, suppose that real output in the United States grows at approximately 3%. If the inflation rate is 2% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 6P

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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 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.
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. 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. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. -An individual's share of the government debt represents only a small portion of his or her lifetime earnings. -A…
Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market. look at image for graph What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will increase because the cost of borrowing increases. decrease because the cost of borrowing increases. decrease because the cost of borrowing decreases. increase because the cost of borrowing decreases.
Other things the same, an increase in the budget deficit A. shifts the supply of loanable funds left, so the interest rate rises. B. shifts the demand for loanable funds right, so the interest rate rises. C. shifts the demand for loanable funds left, so the interest rate falls. D. shifts the supply of loanable funds right, so the interest rate falls.
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?
The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. NOTE: the options for the first dropdown question is (investment or saving), the options for the second dropdown question is (decreases or increases), the options for the third dropdown question is (greater or less), the options for the fourth dropdown question is (surplus or shortage), the options for the fifth dropdown question is (raise or lower), the options for the sixth dropdown question is (increasing or drecreasing), and the options for the seventh dropdown question is also (increasing or decreasing)
In briefly Explain the government budget deficit and debt and how this can cause crowding out for loanable funds in the market.?
Collaboration 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.
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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).
Assume the country’s government increased spending and as a result, the nation ran a deficit. Explain how the increase in government spending will affect real interest rates and show the change on the loanable funds market graph.
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