Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN: 9781305971509
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 13, Problem 4CQQ
To determine
The effect of the save more for retirement on the loanable fund market.
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If a popular TV show on personal finance convincesAmericans to save more for retirement, the_________ curve for loanable funds would shift,driving the equilibrium interest rate _________.a. supply; upb. supply; downc. demand; upd. demand; down
Hi I want to ask what will happen to the market of loanable funds and the natural level of output in long run when the government runs a budget surplus? what will the graph of the loanable funds market look like?
Use the loanable fund's diagram to explain how you would expect an increase in inflationary expectations to affect:
the supply and demand schedule
The nominal rate of interest
An increase desire to save for old age
A reduction in taxes on income from saving
Chapter 13 Solutions
Principles of Macroeconomics (MindTap Course List)
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- What would happen in the market for loanable funds if the government were to increase the tax on interest income? A) Real interest rates would rise. B) Real interest rates would be unaffected C) Real interest rates would fall. D) The effect on the real interest rate is uncertain.arrow_forwardANSWER ONLY D AND E ,Due to recent pandemic in country A, the economic activity in this country has decreased substantially causing a significant reduction in government revenues. The country projects a budget deficit of 35 billion dollars next year. The government of Canada borrows $35 billion more next year than this year from the market for loanable funds. a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? Note: make sure you label your diagram properly. b) What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $35 billions of extra government borrowing. Hints: explain with diagram and/or formula learned. d) How does the elasticity of demand for loanable funds affect the size of these changes? Hints: demonstrate with diagrams. e) Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in…arrow_forwardIn which year was water the most expensive in real terms? Show work. What was the real wage for Jakku’s minimum wage of $8.25 in 2014? Evaluate Jakku’s economic health. You must cite results from your previous calculations. Consider the market for loanable funds and assume that market is in equilibrium. Suppose that the overall income levels increase. Describe the initial effect, how the market adjusts, and how equilibrium is affected.arrow_forward
- Recently, the economies of China and India have begun to grow very rapidly. This increases their citizens’ income and wealth. In turn, these citizens increase their savings in their country and also in the United States. a. When foreign savings enter the U.s. loanable funds market, which curve is affected—supply or demand? How is this curve affected? b. How would you graph the U.s. loanable funds market both before and after the increase in foreign savings? c. How does the change in foreign savings affect both investment and future output in the United states?arrow_forwardDue to recent pandemic in country A, the economic activity in this country has decreased substantially causing a significant reduction in government revenues. The country projects a budget deficit of 35 billion dollars next year. The government of Canada borrows $35 billion more next year than this year from the market for loanable funds. a) Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall? Note: make sure you label your diagram properly. b) What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $35 billions of extra government borrowing. Hints: explain with diagram and/or formula learned. c) How does the elasticity of supply of loanable funds affect the size of these changes? Hints: demonstrate with diagrams.arrow_forwardDraw the loanable funds market for 30-year fixed rate mortgages with the equilibrium rate at 5.13% and the equilibrium total amount of mortgages at $12.0 trillion. a> For the sake of simplicity, assume that mortgages are issued and financed through “banks” (I know some of you work in the mortgage, real estate, or finance industry and know the minute details of the mortgage market, but let’s just keep it simple). If people are willing to save more money in “banks,” how will this market be affected? (i.e., which curve(s) will shift, and in which direction?) b> What will happen to the equilibrium quantity of loans after the event in part a? What will happen to the equilibrium interest rate for 30-year fixed rate mortgages after the event in part a?arrow_forward
- Chairman Latrobe, the Supreme Leader of Rolling Rock decided to increase the personal tax rate to fund the defense force. 8) How may this affect the loanable funds market? Explain by describing the change in the demand for, or the supply of, loanable funds. 9) Because of the change decreed by President Thug and your answer to question 8, what is likely to happen to the interest rate and the quantity of funds in the loanable funds market? 10) How will each of these Rolling Rockers feel about President Thug’s decision? (A) Investor Confidence (B) The President of Rolling Rock National Bankarrow_forwardAccording 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 deficitarrow_forwardIf the economy is in recession and government increases money supply do you think it will affect product market? How it will affect i. the price level and value of money, ii. Loanable fund market: expected inflation and real GDP? Use the relevant diagrams.arrow_forward
- In the market for loanable funds, the equilibrium interest rate is 3% and the equilirbium quantity of loanable funds is $500 billion.What's the likely result if bamks offer loans for an interest rate of 5%? a) the quantity of loans supplied by banks will be greater than the quantity of loans demanded from potential investors b) the government will issue more bonds to make up for the decreased number of loans c) there'll be an increase in borrowing d) the quantity of loanable funds demanded will increasearrow_forwardUsing 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.arrow_forwardSuppose the government borrows $20 billion more next year than this year,a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.c. How does the elasticity of supply of loanable funds affect the size of these changes?d. How does the elasticity of demand for loanable funds affect the size of these changes?e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?arrow_forward
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