Question 23Suppose the world consists of two countries, ABC and XYZ, only. The (autarky) equilibrium interest rate in ABC and XYZare 15% and 12% respectively. The market for loanable funds can be described by the following equations:CountryDemand for loanable fundsSupply of loanable fundsАВСDFABC = 300 – 7IABCSFB = 30 + 31ABCXYZDFXYZ = 180 - 6ixyzSFc = 60 + 14ixYzNote: Interest rates are expressed in percentage points (i.e., if i = 5, then i = 5%).(inflows orWhen the international flows of capital are allowed, XYZ will experience net capital(enter a number here and keep your answer to theoutflows) and the size of XYZ's trade balance isnearest integer)Next

The international trade not only allows free flow of commodities across countries but also enables…

Suppose the world consists of two countries, ABC and XYZ, only. The (autarky) equilibrium interest rate in ABC and XY are 15% and 12% respectively. The market for loanable funds can be described by the following equations: Country Demand for loanable funds Supply of loanable funds ABC DFABC = 300 – 7¡ABC SFB 30 +31ABC %3D %3D XYZ DFXYZ = 180 – 6ixyZ SFC = 60 + 14ixYZ %3D Note: Interest rates are expressed in percentage points (i.e., if i = 5, then i = 5%).

Suppose the world consists of two countries, ABC and XYZ, only. The (autarky) equilibrium interest rate in ABC and XY are 15% and 12% respectively. The market for loanable funds can be described by the following equations: Country Demand for loanable funds Supply of loanable funds ABC DFABC = 300 – 7¡ABC SFB 30 +31ABC %3D %3D XYZ DFXYZ = 180 – 6ixyZ SFC = 60 + 14ixYZ %3D Note: Interest rates are expressed in percentage points (i.e., if i = 5, then i = 5%).

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

See similar textbooks

Similar questions

Draw the diagram for the loanable funds model. Suppose the tax laws are altered to providemore incentives for private saving (assume that total tax revenue T does not change). Whathappens to the interest rate and investment?
The following graphs depict the market for loanable funds and the relationship between the real interest rate and the level of net capital outflow (NCO) measured in terms of the Mexican currency, the peso. The Market for Loanable Funds in MexicoDemandSupply012345678987654321REAL INTEREST RATE (Percent)LOANABLE FUNDS (Billions of pesos)Demand Supply Mexican Net Capital OutflowNCO-4-3-2-10123456987654321REAL INTEREST RATE (Percent)NET CAPITAL OUTFLOW (Billions of pesos)NCO Complete the first row of the table to reflect the state of the markets in Mexico. Real Interest Rate Net Capital Outflow (NCO) (Percent) (Billions of pesos) Initial state After capital flight Now, suppose that Mexico experiences a sudden bout of political turmoil, which causes world financial markets to become uneasy. Because people now view Mexico as unstable, they decide to pull some of their assets out of Mexico and put them into more…
Consider the following policy scenarios and for each scenario diagrammatize and fully explain using analysis for the market for loanable funds how the following government policies affect the economy’s saving and investment. (a) Scenario 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. (b) Scenario Policy 2: Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs).
Three students have each saved $1000. Each has an investment opportunity in which he or she can invest up to $2000. Here are the rates of return on the students’ investment projects: Harry 5 percent Ron 8 percent Hermione 20 percent If borrowing and lending are prohibited, so each student can use only personal saving to finance his or her own investment project, how much will each student have a year later when the project pays its return? Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market? Among these three students, what would be the quantity of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent? At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate, which student(s)…
Consider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to provide incentives on savings by allowing people to shield their savings by opening Retirement Accounts with commercial banks. What is the effect of this policy on the market for loanable finds Interest rate will (Please write one word either increase or decrease ) Quantity of loanable funds will(Please write one word either increase or decrease) Now assume, the parliament passed a tax reform aimed at making investment more attractive—for instance, by instituting an investment tax credit. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new piece of equipment What is the effect of this policy on the market for loanable finds Interest rate will (Please write one word either increase or decrease) Quantity of loanable funds will((Please write one word either increase or decrease)
Consider the market for loanable fund. Suppose that government started to give tax incentives for investment (so the cost of investment fell.) Answer which curve (Demand or Supply) would shift to which direction (Left or Right), and answer how the equilibrium saving would change (Decrease or Increase)Curve: Direction: Saving:
In 2020, the World Bank and International Monetary Fund (IMF) have been deeply apprehensive of government debt defaults of developing countries due to COVID-19. Discuss why, when a leading developing country government defaults on its loan from a foreign country, interest rates on bonds issued by many other developing countries will rise and cause widespread harm to the world economy. (Use a loanable funds market diagram in your answer.)
After reading the given descriptions, please place the correct label by the quadrant on the graph that best describes each person's position in the market for loanable funds. Jolien decides not to take out a loan to fund expanding her grocery store because she projects it will only earn a return of 4%4%. Osi closely follows the market for United States Treasury Bonds. He is willing to invest in them anytime the rate of return is 5%5% or higher, and sees that this is the case. In order to open a new car wash facility expected to return 13%13%, Julius secures a loan. John will shift his stock investments to corporate bonds when they return at least 10%10%. They do not, so he stays with stocks
Three students have each saved $1,000. Each has an investment opportunity in which he or she can invest up to $2,000.Here are the rates of return on the students' investment projects: Harry 5 percent Ron 8 percent Hermione 20 percent a. If borrowing and lending are prohibited, each student uses only personal savings to finance his or her own investment project, how much will each student have a year later when the project pays its return? b. Now suppose their school opens up a market for loanable funds in which students can borrow and lend among themselves at an interest rate r. What would determine whether a student would choose to be a borrower or lender in this market? c. Among these three students, what would be the number of loanable funds supplied and quantity demanded at an interest rate of 7 percent? At 10 percent? d.At what interest rate would the loanable funds market among these three students be in equilibrium? At this interest rate,…
in a loanable funds model the economy is at its longrun equilibrium and suddenly there is a rise in real GDP. a. supply of loanable funds - shift left, shifts right, no shift b. real interest rate- increase, no change, decrease c. public saving- no change, increaes, increase d. investment- decrease, increase, no change
Using a supply and demand diagram, explain the following scenario impacts the market for loanable funds. Show your work, and be specific about what happens to the equilibrium. (d) People’s values change, and they start to save more of their income.
Assume that a country's per-worker production is y = k1/2, where y is output per worker and kis capital per worker. Assume also that 10 percent of capital depreciates per year (= 0.10) 2 andthere is no population growth or technological change.a. If the saving rate (s) is 0.4, what are capital per worker, production per worker, andconsumption per worker in the steady state?b. Solve for steady-state capital per worker, production per worker, and consumption perworker with s = 0.6.c. Solve for steady-state capital per worker, production per worker, and consumption perworker with s = 0.8.d. Is it possible to save too much? Why?