Using supply and demand diagrams representing the market for loanable funds, show and explain the effect on the equilibrium interest rate and quantity of loanable funds in the following events. Each event is treated independently: a) A reduction in government spending b) a change in tax laws that encouraged households to save more

Using supply and demand diagrams representing the market for loanable funds, show and explain the effect on the equilibrium interest rate and quantity of loanable funds in the following events. Each event is treated independently: a) A reduction in government spending b) a change in tax laws that encouraged households to save more

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter21: Financial Markets, Saving, And Investment

Section: Chapter Questions

Problem 8P

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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:
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. (a) The government increases its debt, thus crowding out the loanable funds market.
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?
Using the market for loanable fund diagram, show graphically how it affects interest rate and investment in each of the following cases. a) G > T. b) A book titled ‘Live for Tomorrow’ convinces people to spend less. c) Tax on interest income rises. please answer step by step.Answer must be correct.Show all calculation. please Don,t copy from anywhere.
According to how we model the Loanable Funds market in Ch. 6 (considering household savings and taking (T – G) as government’s net ‘saving,’ which could be negative it there were a budget deficit), which of the following shifts the Supply of Loanable Funds curve to the left? (T = taxes; G = government spending.) Group of answer choices A) higher tax rates on business investment spending B) a change in tastes toward consuming less C) higher budget deficit D) change in tastes toward saving more E) lower budget deficit
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. (c) Technological improvements increase the profitability of investments for firms.
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.
Use the loanable funds market to illustrate the effect of the following events on the equilibrium. Illustrate the effects on the interest rate and quantity of investment-savings a) The proportion of retired people in the population goes up. Think that usually retired people generally save less than working people at any interest rate. b) At any given interest rate, consumers decide to save more (assume the budget balance is zero). c) At any given interest rate, businesses become very optimistic about the future profitability of investment spending (assume the budget balance is zero).
Suppose the government changes the tax code, allowing individuals to reduce their taxable income if they save money in registered retirement savings plans (RRSPs). Your response should answer the following questions: State and explain which loanable funds curve would this policy affect? Which way would the loanable funds curve shift? What would be the impact on interest rates? Draw the loanable funds diagram to illustrate your answers for a to c.
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).
Suppose the long-term real interest falls. In the (private sector) loanable funds market. the result will be. a. the demand for loanable funds curve shifts to the right b. the supply of loanable funds curve shifts to the left c. the demand for Ioanable funds curve does not shift to the right nor does the supply of loanable funds cunve shift to the left d. the demand for loanable funds curve shifts to the right and the supply of loanable funds curve shifts to the left
Use the analysis for the market for loanable funds diagrams to examine and explain both in words anddiagrammatically how the following government policy affect the economy’s saving and investment.Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firmbuilding a new factory or buying a new piece of equipment