Show on the graph how each of the following events changes the equilibrium interest rate by shifting the relevant curve(s). a. The president signs a tax cut into law. Interest rate 10 40 N 40 n + 2 1 D x 100 300 400 e 500 600 700 800 900 1,000 Loanable funds
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- A year ago a country reduced the tax rate on all interest income from 20% to 10%. During the year private saving was $500 billion as compared to $400 billion the year before the tax reform. Taxes on interest income fell by $10 billion. Assuming no other changes in income, or government revenues or spending, which of the following is correct? a. the substitution effect was larger than the income effect; national saving rose b. the substitution effect was larger than the income effect; national saving fell c. the income effect was larger than the substitution effect; national saving rose d. the income effect was larger than the substitution effect; national saving fellIn the market for loans, suppose that the real interest rate is lower than the equilibrium real interest rate. Saving is Select one: a. greater than investment, and the real interest rate will fall. b. less than investment, and the real interest rate will rise. c. equal to investment, and the real interest rate will rise. d. None of the above.Please help with the following economic question : Explain the relationship between Investment spending and the interest rate.
- Explain the difference between saving and investment as defined by a macroeconomist. Which of the following situations represent investment and which represent saving? Explain.a. Your family takes out a mortgage and buys a new house.You use your $200 paycheck to buy stock in Africel.Your roommate earns $100 and deposits it in his account at a bank.You borrow $1,000 from a bank to buy a car to use in your pizza delivery business.The interest rate is 7 percent. Use the concept of present value to compare $200 to be received in 10 years and $300 to be received in 20 years.A company has an investment project that would cost $10 million today and yield a payoff of $15 million in 4 years.Should the firm undertake the project if the interest rate is 11 percent? 10 percent? 9 percent? 8 percent?Can you figure out the exact cutoff for the interest rate between profitability and nonprofitability?(Please, explain with graph) A consumer, who is initially a lender, remains a lender even after a decline in interest rates. Is this consumer better off or worse off after the change in interest rates? If the consumer becomes a borrower after the change is he better off or worse off?If the GDP increases what is expected to happen. to the interest rate? Please answer uniquely in 500 words.
- Let’s analyze the rational behavior and well-being of 3 different individuals in regards to their saving and borrowing behavior. I recommend drawing the intertemporal consumption model graph for each of the following situations. We will be analyzing three individuals; Charlie is saving at the current interest rate, Allison is borrowing at the current interest rate, and Chris is neither saving nor borrowing at the current interest rate. (a) Charlie is currently saving money (spending less than his current income) at the current interest rate. Will he be made better off if the interest rate subsequently increases? (b) Allison is currently borrowing money (spending more than her current income) at the current interest rate. Will she be made better off if the interest rate subsequently increases? (c) Chris is currently neither saving nor borrowing (spending exactly his current income) at the current interest rate. Will he be made better off if the interest rate subsequently increases?…2. In a two-period model, Jennifer expects to earn income of £15,000 in the second period but nothing in the current period; whereas Martin has income of £15,000 in the current period (everything adjusted for inflation). The real interest rate for both borrowing and lending is 30%. a) What is the present value of Jennifer’s future income? b) Show diagrammatically why Martin is better off than Jennifer. c) Show diagrammatically the impact of a fall in the interest rate for both Martin and Jennifer. Is it possible for a fall in interest rates to make Jennifer better off than Martin? d) Comment briefly on the implication of your answer to part (c) for the effectiveness of monetary policy carried out by changing the central bank interest rate.Consider an economy described by the following equations:Y = C + I + GY = 5,000G = 1,000T = 1,000C = 250 + 0.75(Y −T )I = 1,000 − 50 r. a) find the equilibrium interest rate
- Consider an economy described by the following equations:Y = C + I + GY = 5,000G = 1,000T = 1,000C = 250 + 0.75(Y −T )I = 1,000 − 50 r. a)Find the new equilibrium interest rateAssume that consumption decreases, when interest rates increase. If there is a technological advance that leads to an increase in investment demand, then: A. investment increases and the interest rate rises. B. investment and the interest rate are both unchanged. C. investment is unchanged and the interest rate rises. D. investment decreases and the interest rate rises.Suppose the real interest rate is higher than the equilibrium interest rate. We can predict that a. The real interest rate will decrease to encourage investment and discourage saving b. The real interest rate will increase to discourage investment and encourage saving c. The real interest rate will decrease to discourage investment and encourage saving d. The real interest rate will increase to encourage investment and discourage saving