Which of the following are part of Keynes' critique of the loanable funds model? Choose all that apply. Saving is a passive residual of income, not a function of interest rates Savings drives investment, not the other way around Investment is a function of income, not of interest rates Investment decision are made facing a fundamental uncertainty about the future Saving does not equal investment at the macroeconomic equilibrium Investment is determined by expectations of the future and expected profitability, not the pool of savings available to be lent or interest rates

Which of the following are part of Keynes' critique of the loanable funds model? Choose all that apply. Saving is a passive residual of income, not a function of interest rates Savings drives investment, not the other way around Investment is a function of income, not of interest rates Investment decision are made facing a fundamental uncertainty about the future Saving does not equal investment at the macroeconomic equilibrium Investment is determined by expectations of the future and expected profitability, not the pool of savings available to be lent or interest rates

Microeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506893

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter14: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 8CQ

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Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. a. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model. (Answered in previous question on my page) b. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 – 50r. Clearly explain how the economy moves to the new equilibrium and compute the new equilibrium values of C, I, and r. What are the new values of private saving, public saving, and national saving? Use the graph you sketched in a) to illustrate and explain the change in the…
Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. Complete the following tasks. a. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model. b. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 – 50r. Clearly explain how the economy moves to the new equilibrium and compute the new equilibrium values of C, I, and r. What are the new values of private saving, public saving, and national saving? Use the graph you sketched in a) to illustrate and explain the change in the economy. c.…
Suppose government provides tax rebate to small business on their business-related expenditure. Assuming no change in government budgetary position, this policy is likely to have a positive effect on household (or private) saving in the economy (Hint: think about the effect of this policy in Loanable Funds Market) Is this statement true, false or uncertain? Please provide your explaination.
Which of the following will cause the supply of loanable funds to curve shift leftward
As a result of this policy, the equilibrium interest rate . Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. National saving decreases by less than $20 billion. Private saving increases by less than $20 billion. Public saving decreases by exactly $20 billion. Investment increases by less than $20 billion. The more elastic the supply of loanable funds, the is the change in national saving as a result of the increase in government borrowing. The more elastic the demand for loanable funds, the the change in national saving as a result of the increase in government borrowing. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. This belief would cause people to save today, which would private saving and the supply of loanable funds. This would the…
Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to Calculate, you must show how you arrived at your final answer. A national newspapers 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 an 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…
An economy is currently experiencing inflation that exceeds the target rate set by the central bank. Illustrate this process from using the money market model, the loanable finds market model and the Aggregate Expenditure model.
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.
Based on the Ricardian Equivalence, explain the impact of the debt-financed tax cut on public saving, private saving, and national saving.
_______ 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
Which of the following shifts the demand for loanable funds curve to the right (increases demand for loanable funds) (CV) Which of the following shifts the demand for loanable funds curve to the right (increases demand for loanable funds) the real interest rate decreases the marginal product of capital decreases the marginal product of capital increases the real interest rate increases
All other things equal, an increase in government borrowing will ________ a. shift the demand curve for loanable funds to the right, increasing interest rates. b. shift the supply curve of loanable funds to the right, decreasing interest rates. c. shift the demand curve for loanable funds to the left, decreasing interest rates. d. shift the supply curve of loanable funds to the left, but interest rates remain unchanged.