Economics (6th Edition)
6th Edition
ISBN: 9780134105956
Author: Hubbard
Publisher: PEARSON
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Question
Chapter 21, Problem 21.2.11PA
Sub part (a):
To determine
The shift in supply curve of loanable fund.
Sub part (b):
To determine
The shift in supply curve of loanable fund.
Sub part (c):
To determine
The shift in supply curve of loanable fund.
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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.
Draw a graph of the supply and demand of loanable funds. Then, show how the interest rate will be
affected when the following scenarios occur:
a. The government implements a program that reduces investment tax credits.
b. The government budget deficit is reduced by 30%. (Hint: Does the government still need to borrow?)
c. More foreigners are saving their money in U.S. banks.
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.
Chapter 21 Solutions
Economics (6th Edition)
Ch. 21 - Prob. 21.1.1RQCh. 21 - Prob. 21.1.2RQCh. 21 - Prob. 21.1.3RQCh. 21 - Prob. 21.1.4RQCh. 21 - Prob. 21.1.5PACh. 21 - Prob. 21.1.6PACh. 21 - Prob. 21.1.7PACh. 21 - Prob. 21.1.8PACh. 21 - Prob. 21.1.9PACh. 21 - Prob. 21.1.10PA
Ch. 21 - Prob. 21.1.11PACh. 21 - Prob. 21.1.12PACh. 21 - Prob. 21.1.13PACh. 21 - Prob. 21.1.14PACh. 21 - Prob. 21.2.1RQCh. 21 - Prob. 21.2.2RQCh. 21 - Prob. 21.2.3RQCh. 21 - Prob. 21.2.4RQCh. 21 - Prob. 21.2.5PACh. 21 - Prob. 21.2.6PACh. 21 - Prob. 21.2.7PACh. 21 - Prob. 21.2.8PACh. 21 - Prob. 21.2.9PACh. 21 - Prob. 21.2.10PACh. 21 - Prob. 21.2.11PACh. 21 - Prob. 21.2.12PACh. 21 - Prob. 21.2.13PACh. 21 - Prob. 21.2.14PACh. 21 - Prob. 21.2.15PACh. 21 - Prob. 21.2.16PACh. 21 - Prob. 21.2.17PACh. 21 - Prob. 21.3.1RQCh. 21 - Prob. 21.3.2RQCh. 21 - Prob. 21.3.3RQCh. 21 - Prob. 21.3.4PACh. 21 - Prob. 21.3.5PACh. 21 - Prob. 21.3.6PACh. 21 - Prob. 21.3.7PACh. 21 - Prob. 21.3.8PACh. 21 - Prob. 21.3.9PACh. 21 - Prob. 21.3.10PACh. 21 - Prob. 21.1RDECh. 21 - Prob. 21.2RDECh. 21 - Prob. 21.3RDE
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Similar questions
- Other things the same, people in the U.S. would want to save more if the real interest rate in the U.S. a. fell. The increased saving would increase the quantity of loanable funds demanded.b. fell. The increased saving would increase the quantity of loanable funds supplied.c. rose. The increased saving would increase the quantity of loanable funds demanded.d. rose. The increased saving would increase the quantity of loanable funds supplied.arrow_forwardIf there is a fall in the real interest rate, how does the quantity of loanable funds supplied change?arrow_forwardUsing 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.arrow_forward
- 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?arrow_forwardWhat is true about equilibrium in the market for loanable funds? A. Savings = gross domestic product (GDP) B. Investment = interest rate C. Interest rate = inflation D. Investment = savingsarrow_forwardInvestment — End of Chapter Problem Move the appropriate curve or curves in each graph to illustrate the effect of each of the four events on the market for loanable funds. If the event should not impact the market for loanable funds, then leave the graph unchanged.arrow_forward
- 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.arrow_forwardNeed help with economics question 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.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_forward
- What happens to the quantity of loanable funds supplied when the interest rate rises? Explain why this change happens?arrow_forwardConsider a loanable funds market of Pakistan. Suppose, if government want to implement the policy to provide incentives on savings by allowing people to shield their savings by opening Retirement Accounts with commercial banks. What is the effect of this policy on the market for loanable finds Interest rate will (Please write one word either increase or decrease ) Quantity of loanable funds will(Please write one word either increase or decrease) Now assume, the parliament passed a tax reform aimed at making investment more attractive—for instance, by instituting an investment tax credit. An investment tax credit gives a tax advantage to any firm building a new factory or buying a new piece of equipment What is the effect of this policy on the market for loanable finds Interest rate will (Please write one word either increase or decrease) Quantity of loanable funds will((Please write one word either increase or decrease)arrow_forwardWhat do loanable funds finance? What is the source of loanable funds? Loanable funds finance _______. A. business investment, the government budget surplus, and international borrowing B. business investment, the government budget deficit, and international investment or lending C. private saving, the government budget surplus, and international borrowing D. private saving, the government budget deficit, and international investment or lendingarrow_forward
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