This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to and the level of investment to Initially, the government's budget is balanced, then the government significantly increases spending on national defence without changing taxes. This change in spending causes the government to run a budget national saving. which Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to the level of investment spending.
This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to and the level of investment spending to An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to and the level of investment to Initially, the government's budget is balanced, then the government significantly increases spending on national defence without changing taxes. This change in spending causes the government to run a budget national saving. which Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to the level of investment spending.
Chapter21: Financial Markets, Saving, And Investment
Section: Chapter Questions
Problem 9P
Related questions
Question
The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow.
NOTE: the first dropdown question options are (fall or rise), the seconds are (decrease or increase), the thirds are (fall or rise), the fourths are (fall or rise), the fifths are (deficit or surplus), the sixths are (decreases or increases), the sevenths are (fall or rise), and the last ones is (crowding out ot increasing)
Transcribed Image Text:Supply
Demand
LOANABLE FUNDS (Billions of dollars)
Registered retirement savings plans (RRSPS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to
such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year.
Shift the appropriate curve on the graph to reflect this change.
This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to
and the
level of investment spending to
An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government
implements a new investment tax credit.
Shift the appropriate curve on the graph to reflect this change.
The implementation of the new tax credit causes the interest rate to
and the level of investment to
Initially, the government's budget is balanced, then the government significantly increases spending on national defence without changing taxes.
This change in spending causes the government to run a budget
which
national saving.
Shift the appropriate curve on the graph to reflect this change.
This causes the interest rate to
the level of investment spending.
INTE RE ST RATE (Peroe
Transcribed Image Text:5. The market for loanable funds and government policy
The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you
complete the questions that follow. (Note: You will not be graded on any changes you make to the graph.)
Demand
Supply
Supply
Demand
LOANABLE FUNDS (Billions of dollars)
Registered retirement savings plans (RRSPS) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to
such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year.
Shift the appropriate curve on the graph to reflect this change.
This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to
and the
level of investment spending to
An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government
implements a new investment tax credit.
INTE RE ST RATE (Percent)
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