The Washington Post's headline reads "Business Confidence Reaches Highest Level in 5 Years." A. Draw a correctly labeled graph of the loanable funds market and show the effect of high business confidence on the equilibrium real interest rate. B. Assume the government increases its spending on capital projects and infrastructure. Would financing the increased government spending by borrowing result in a higher, a lower, or the same equilibrium real interest rate? Explain. C. How will the increase in government spending financed by borrowing affect national savings?

The Washington Post's headline reads "Business Confidence Reaches Highest Level in 5 Years." A. Draw a correctly labeled graph of the loanable funds market and show the effect of high business confidence on the equilibrium real interest rate. B. Assume the government increases its spending on capital projects and infrastructure. Would financing the increased government spending by borrowing result in a higher, a lower, or the same equilibrium real interest rate? Explain. C. How will the increase in government spending financed by borrowing affect national savings?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter18: Savings,investment And The Financial System

Section: Chapter Questions

Problem 5PA

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A national newspaper’s headline reads “Business Confidence Reaches Highest Level in 5 Years.” (a) Draw a correctly labeled graph of the loanable funds market, and show the effect of high business confidence on the equilibrium real interest rate. (b) Assume the government increases its spending on capital projects and infrastructure. Would financing the increased government spending by borrowing result in a higher, a lower, or the same equilibrium real interest rate? Explain. (c) How will the increase in government spending financed by borrowing affect national savings? (d) If the expected inflation rate decreases to zero, will the nominal interest rate be greater than, less than, or equal to the real interest rate? Explain.
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.
In the graph you've just made, how does a tax on interest income influence the real interest rate and investment? A tax on interest income _______ loanable funds, which _______ the real interest rate and _______ investment. A. decreases the demand for; raises; decreases B. decreases the supply of; raises; decreases C. increases the supply of; lowers; increases D. increases the demand for; lowers; increases Screenshot attached thanks
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?
Using a correctly labeled loanable funds graph, show the effect of the contractionary fiscal policy decreasing government spending on real interest rates. Given the change in the real interest rate. What is the impact on each of the following? a. investment b. Economic growth rate. Explain. c. The international value of the dollar. Explain. Now assume instead that the government takes no policy action to fix the problem of the economy that is operating above full employment. In the long run, will the short-run aggregate supply increase, decrease, or remain unchanged? Explain.
In briefly Explain the government budget deficit and debt and how this can cause crowding out for loanable funds in the market.?
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…
Assume that GDP ( y) is 6.000. Consumption (C) is given by the equation C= 600 + 06(Y-T). Investment (I )is given by the equation I=2,000- 100r, where r is the real rate of interest in percent. Taxes (T) are government spending (G) is also 500 a. What are the equilibrium values of C, I, and r? b) What are the values of private saving, public saving, and national saving? ·
Briefly explain the role played by banks between savers and borrowers and how the economy benefits (or not) from their taking on this role.
Q2. Suppose that Congress passed a tax reform aimed at making investment more attractive, which is called 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 or machines. a. In the market for loanable funds, graph and explain the effects on the equilibrium real interest rate and the quantity of loanable funds? b. What happens to the quantity of saving and investment?
What event raises the equilibrium real interest rate and decreases the equilibrium quantity of loanable funds? _______ raises the equilibrium real interest rate and decreases the equilibrium quantity of loanable funds. A. A decrease in default risk B. An increase in expected future income C. An increase in disposable income D. A decrease in wealth Thank you!@# 1%2
Suppose GDP is $8 trillion, taxes are $1.5 trillion, private saving is $0.5 trillion, and public saving is $0.2 trillion. National savings?