The graph on the right shows the economy's credit market in equilibrium.Using this graph, illustrate how the equilibrium real interest rate and theequilibrium quantity of credit would change if the following event occurs.Congress agrees to a reduction in the federal deficit, which involves a significantdecrease in the amount of government borrowing.On Graph 1:1.) Using the line drawing tool, determine the effect on the equilibrium real interestrate and the equilibrium quantity of credit. Label your curve(s) appropriately.Carefully follow the instructions above and only draw the required object(s).Real interest rate (r)r²Graph 1Q*S2CreditsupplycurveCreditdemandcurveQuantity of credit D. Households expect an economic downturn ahead.Japan has been observing a demographic trend of rapid aging. More and morehouseholds are approaching the age of retirement which is affecting their savingrate, which in turn is affecting the credit supply in the economy. Suppose theJapanese government now decides to increase taxes on profits. This affects thecredit demand in the economy.The adjacent diagram shows the initial equilibrium in the Japanese economy withCD₁ and CS₁ depicting the initial credit demand and the initial credit supplycurves respectively.Assume that the credit demand and the credit supply curves shift by equalamounts, i.e., by the same vertical distance.Using the line drawing tool, draw the new credit supply and credit demand curvesin the economy and label them accordingly.Carefully follow the instructions above and only draw the required objects.The new real interest rate is the same asThe new quantity of credit is lower thanits initial equilibrium level.its initial equilibrium level.Credit market equilibrium in the JapaneseeconomyReal interest rate0CS2CD₂Q1Quantity of creditCS1CD1e

DISCLAIMER “Since you have asked multiple question, we will solve the first question for you. If…

the right shows the economy's credit market in equilibrium. Using this graph, illustrate how the equilibrium real interest rate and the equilibrium quantity of credit would change if the following event occurs. Congress agrees to a reduction in the federal deficit, which involves a significant decrease in the amount of government borrowing. On Graph 1: 1.) Using the line drawing tool, determine the effect on the equilibrium real interest rate and the equilibrium quantity of credit. Label your curve(s) appropriately. Carefully follow the instructions above and only draw the required object(s). Real interest rate (r) S2 + Credit supply curve Credit deman curve

the right shows the economy's credit market in equilibrium. Using this graph, illustrate how the equilibrium real interest rate and the equilibrium quantity of credit would change if the following event occurs. Congress agrees to a reduction in the federal deficit, which involves a significant decrease in the amount of government borrowing. On Graph 1: 1.) Using the line drawing tool, determine the effect on the equilibrium real interest rate and the equilibrium quantity of credit. Label your curve(s) appropriately. Carefully follow the instructions above and only draw the required object(s). Real interest rate (r) S2 + Credit supply curve Credit deman curve

Brief Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781337091985

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter8: Savings,investment And The Financial System

Section: Chapter Questions

Problem 8PA

See similar textbooks

Similar questions

please explain each question. 1. We assumeconstantMPC in our model. Is this assumption true in the real world? 2. What determines the proportion of bonds/money that the household keeps? 3. What effect an increase of government spending will have on the output equilibrium in the goods market? Explain using autonomous spending.
A Fiscal Stimulus Program to Fight the Corona Crisis?The German government wants to decide about the design of a stimulus package to combatthe economic consequences of the Corona pandemic Assume that the German economy is currently fully described by the following equations(with C= Consumption, Y= Income, T= Tax):C = 260 + 0.6(Y-T)T = 0.2YCurrent investments are 400 and government expenditures are 380.Three policy options are discussed:Option A: No stimulus programOption B: Additional government spending of €156 billionOption C: As option B, but a part of the additional government expenditures will be used forincentives to invest in renewable energy as such that an increase in private investments by 26can be expected.Calculate equilibrium income and the budget surplus for all 3 Options. Are all options in linewith the Maastricht government deficit criteria
Suppose, the government of Australia incurs a budget deficit of $50 billion due to increased government spending in 2020 as result of Covid 19. Because of this, the government borrowing in 2021 increases by the same amount. a) Compare the size of equilibrium changes in 1) investment, 2) public saving, 3) private saving and 4) national saving (public saving + private saving) with $50 billion increase in borrowing. Compare the changes (increase/decrease) in these variables indicating same, less or more than the $50 billion. b) Will the equilibrium quantity of national savings change by more or less than the initial change in public saving? Explain your answer
A Fiscal Stimulus Program to Fight the Corona Crisis?The German government wants to decide about the design of a stimulus package to combatthe economic consequences of the Corona pandemic.Task 1 Assume that the German economy is currently fully described by the following equations(with C= Consumption, Y= Income, T= Tax):C = 260 + 0.6(Y-T)T = 0.2YCurrent investments are 400 and government expenditures are 380.Three policy options are discussed:Option A: No stimulus programOption B: Additional government spending of €156 billionOption C: As option B, but a part of the additional government expenditures will be used forincentives to invest in renewable energy as such that an increase in private investments by 26can be expected.Calculate equilibrium income and the budget surplus for all 3 Options. Are all options in linewith the Maastricht government deficit criteria?
3. In a economy, consumption is 40, public sector spending is 22, investment is 15, net exports are -3. The treasury is running a $6 budget deficit. Which fraction of their disposable income are households saving? Enter your answer in decimals, not percents. 3a .What was the private saving equal to? 3b. How much of the savings was spend to finance the public sector? 3c. What was the external saving, that is, how much did the people's claims on foreign assets grow?
Suppose the economy is characterized by the following behavioral equation: Y = C + I + G + (X-M) Equilibrium condition C = 2000 -f' 0.75Yd Consumption equation I = 4000 Investment expenditure G = 4100 Government Expenditure X = 2800 Export M = 400 + 0.25Y Import equation T = 100 + 0.3Y Tax equation Yd = disposable IncomeRequired: Derive Balance of Payment (BP) curve and explain why it slopes upwards Compute equilibrium national income and Imports for the economy. Differentiate between the closed-economy model and the open economy model
The table given below shows an economy’s demand for loanable funds and the supply of loanable funds schedules when the government’s budget is balanced. Real Interest rate (% per year) Loanable fund demanded (Trillian of 2002 $) Loanable fund supplied (Trillian of 2002 $) 4 8.5 5.5 5 8 6 6 7.5 6.5 7 7 7 8 6.5 7 9 6 8 10 5.5 8.5 1. If the government has a budget surplus of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 2. If the government has a budget deficit of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 3. If the government has a budget deficit of $1 trillion and the Ricardo-Barro effect occurs, what are the real interest rate and the quantity of investment?
Question Two a. Explain the difference between a binding and non-binding borrowing constraints and thetwo consumption functions that result.b. From the Intertemporal Choice Model, many theories (non-Keynesian theories ofConsumption) came into being. Using graphical and mathematical expressions, compareand contrast the following theories on consumption behaviours:i. Franco Modigliani: Life-Cycle Hypothesisii. Milton Friedman: Permanent-Income Hypothesisiii. Robert Hall: Random Walk Hypothesis
Assume that the economy can be modeled as follows: AE = C + I + G C = 300 + .6Yd I = 400 G = 100 T = 200 y= 1700 consumption = 1200 4) What is the level of private saving in equilibrium? 5) What is the level of public saving in equilibrium? 6) What is the level of aggregate saving in equilibrium? 7) Imagine the government would like to increase equilibrium GDP to 2,000, what would it have to set the level of government spending to? 8) What is the size of the spending multiplier? 9) What is the size of the tax multiplier?
Based on the below information, help Renwick economy find the equilibrium level of output. Aggregate Demand Aggregate Supply Equilibrium YAD = C + I + G YAS = A Kα L1-α YR =0.5YAD+ 0.5YAS C = 600 + βYD A = (1 + g) Ao YD = YR + TR - tYR K = 35 TR = 55 L = 80 G = 120 g = 6% I = 50 Ao = 150 t = 0.15 α = 0.65 Where C is private consumption, YD is disposable income; TR, G and I are transfer payments, government spending and total investment, respectively. A in the index of technology and K and L are capital and labour inputs. A0 is the initial levels of A and L, both assumed to be 150, while g is the growth rates. The MPC is 0.60. a.) Find aggregate demand…
Create three diagrams for the aggregate expenditures (AE) model for a public closed economy by adding different taxes. For the Diagram #1 suppose: Autonomous Expenditures: $6000; MPC: 0.75 Taxes: $1500;Potential Output: $16500For the Diagram #2 suppose: Autonomous Expenditures: $ 6000; MPC: 0.75;Taxes: $3000;Potential Output: $16500For the Diagram #3 suppose: Autonomous Expenditures: $6000; MPC: 0.75; Taxes: $2500Potential Output: $16500Explain each diagram by determining economic gaps and/or equilibriums. How does an increase in taxes affect GDP? How does a decrease in taxes affect GDP?
Assume that the economy can be modeled as follows: AE = C + I + G C = 300 + .6Yd I = 400 G = 100 T = 200 1) Solve for equilibrium income (Y*). 2) Graph the economy. (Upload the graph in the next question.) 3) What is the level of consumption in equilibrium? 4) What is the level of private saving in equilibrium? 5) What is the level of public saving in equilibrium? 6) What is the level of aggregate saving in equilibrium? 7) Imagine the government would like to increase equilibrium GDP to 2,000, what would it have to set the level of government spending to? 8) What is the size of the spending multiplier? 9) What is the size of the tax multiplier?