Economics (7th Edition) (What's New in Economics)
7th Edition
ISBN: 9780134738321
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 21, Problem 21.2.13PA
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?
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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thanks
Draw a correctly labeled graph of the loanable funds market showing the equilibrium real interest rate and the equilibrium quantity of loanable funds.
Chapter 21 Solutions
Economics (7th Edition) (What's New in Economics)
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. 21.2.5PACh. 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. 21.2.17PACh. 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. 21.1RDECh. 21 - Prob. 21.2RDECh. 21 - Prob. 21.3RDECh. 21 - Prob. 21.2CTE
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- This 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_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_forwardUse 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_forward
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