MACROECONOMICS W/ MY ECON LAB
6th Edition
ISBN: 9781323460689
Author: Hubbard
Publisher: PEARSON C
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Question
Chapter 10, Problem 10.2.13PA
To determine
The effect of increasing tax rate on the equilibrium level of real interest rate and quantity demanded of loanable fund.
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Suppose the government is considering an increase in the retirement age for Australian citizens. Using the diagram for the market for loanable funds, explain how this change would affect the equilibrium real interest rate and investment. In the long run, how would this change affect real GDP in Australia?
Draw a correctly labeled graph of the loanable funds market showing the equilibrium real interest rate and the equilibrium quantity of loanable funds.
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
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Chapter 10 Solutions
MACROECONOMICS W/ MY ECON LAB
Ch. 10 - Prob. 10.1.1RQCh. 10 - Prob. 10.1.2RQCh. 10 - Prob. 10.1.3RQCh. 10 - Prob. 10.1.4RQCh. 10 - Prob. 10.1.5PACh. 10 - Prob. 10.1.6PACh. 10 - Prob. 10.1.7PACh. 10 - Prob. 10.1.8PACh. 10 - Prob. 10.1.9PACh. 10 - Prob. 10.1.10PA
Ch. 10 - Prob. 10.1.11PACh. 10 - Prob. 10.1.12PACh. 10 - Prob. 10.1.13PACh. 10 - Prob. 10.1.14PACh. 10 - Prob. 10.2.1RQCh. 10 - Prob. 10.2.2RQCh. 10 - Prob. 10.2.3RQCh. 10 - Prob. 10.2.4RQCh. 10 - Prob. 10.2.5PACh. 10 - Prob. 10.2.6PACh. 10 - Prob. 10.2.7PACh. 10 - Prob. 10.2.8PACh. 10 - Prob. 10.2.9PACh. 10 - Prob. 10.2.10PACh. 10 - Prob. 10.2.11PACh. 10 - Prob. 10.2.12PACh. 10 - Prob. 10.2.13PACh. 10 - Prob. 10.2.14PACh. 10 - Prob. 10.2.15PACh. 10 - Prob. 10.2.16PACh. 10 - Prob. 10.2.17PACh. 10 - Prob. 10.3.1RQCh. 10 - Prob. 10.3.2RQCh. 10 - Prob. 10.3.3RQCh. 10 - Prob. 10.3.4PACh. 10 - Prob. 10.3.5PACh. 10 - Prob. 10.3.6PACh. 10 - Prob. 10.3.7PACh. 10 - Prob. 10.3.8PACh. 10 - Prob. 10.3.9PACh. 10 - Prob. 10.3.10PACh. 10 - Prob. 10.1RDECh. 10 - Prob. 10.2RDECh. 10 - Prob. 10.3RDE
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Similar questions
- The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds.arrow_forwardThis question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. A tax law change that successfully encourages saving will (increase/decrease) interest rates, which leads to (less/more) investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising third-year in college, plans to save $550 from her summer job in order to buy textbooks for the upcoming fall semester. Madison's parents are so impressed with her plans that they offer to pay her an additional 30% interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end of the…arrow_forwardThe following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. NOTE: the options for the first dropdown question is (investment or saving), the options for the second dropdown question is (decreases or increases), the options for the third dropdown question is (greater or less), the options for the fourth dropdown question is (surplus or shortage), the options for the fifth dropdown question is (raise or lower), the options for the sixth dropdown question is (increasing or drecreasing), and the options for the seventh dropdown question is also (increasing or decreasing)arrow_forward
- 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).arrow_forwardSuppose there are two types of investment in the economy: business fixed investment and residential investment. Suppose that loanable fund market is in equilibrium and the government grants an investment tax credit only for business investment. How does this policy affect the supply and demand for loanable funds, the equilibrium interest rate and equilibrium quantity of loanable funds? Use graph to explain your answer.arrow_forwardDraw a graph to illustrate the effect of an increase in the demand for loanable funds and an even larger increase in the supply of loanable funds on the equilibrium quantity of loanable funds and the real interest rate.arrow_forward
- If there is a rise in the real interest rate, how does the quantity of loanable funds demanded change?arrow_forwardHow does a decrease in the tax rate on income earned on saving affect saving, investment, the interest rate, and economic growth?arrow_forwardThe graph characterizes a market for loanable funds. Shift the appropriate curves to indicate what will happen to the market if the government grants a new corporate tax credit for business investment. (Look at image) After this change, the real interest rate decreases and the quantity of loanable funds increases. the real interest rate decreases and the quantity of loanable funds decreases. the real interest rate increases and the quantity of loanable funds decreases. the real interest rate increases and the quantity of loanable funds increases.arrow_forward
- The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. (Graph in image) (a. Saving, b. Investment) is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied (a. increases, b. decreases). Suppose the interest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is (a. greater, b. less) than the quantity of loans demanded, resulting in a (a. surplus, b. shortage) of loanable funds. This would encourage lenders to (a. raise, b. lower) the interest rates they charge, thereby (a. increasing, b. decreasing) the quantity of loanable funds supplied and (a. increasing, b. decreasing) the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of ____ %.arrow_forwardMost Australians are found to be frugal during the coronavirus pandemic and have started saving more. Explain how an increase in household saving affects the equilibrium interest rate and the equilibrium quantity of loanable funds.arrow_forwardComplete the following statements. a. Dan saves a portion of his income in an interest-earning account. In the loanable funds market, Dan is b. John owns a pizzeria and needs to borrow money for a new oven. In the loanable funds market, John is c. Savers like Dan are likely to save more when the real interest rate . Therefore, the supply of loanable funds Look at images for word bank . d. Borrowers like John are likely to borrow more when the real interest rate . Therefore, the demand for loanable funds .arrow_forward
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