Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
8th Edition
ISBN: 9780134641843
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 8SPPA
To determine
To explain:
The impact by the budget surplus in Germany on the loanable funds market and on the
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Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market.
look at image for graph
What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will
increase because the cost of borrowing increases.
decrease because the cost of borrowing increases.
decrease because the cost of borrowing decreases.
increase because the cost of borrowing decreases.
Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affects the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit.State, explain and draw the loanable funds diagram for i,ii and iii. (i) which which loanable funds curve would this policy affect?(ii) which way would the loanable funds curve shift?(iii) what would be the the impact on interest rates?
Assume the country’s government increased spending and as a result, the nation ran a deficit. Explain how the increase in government spending will affect real interest rates and show the change on the loanable funds market graph.
Chapter 26 Solutions
Foundations of Economics, Student Value Edition Plus MyLab Economics with eText -- Access Card Package (8th Edition)
Ch. 26 - Prob. 1SPPACh. 26 - Prob. 2SPPACh. 26 - Prob. 3SPPACh. 26 - Prob. 4SPPACh. 26 - Prob. 5SPPACh. 26 - Prob. 6SPPACh. 26 - Prob. 7SPPACh. 26 - Prob. 8SPPACh. 26 - Prob. 9SPPACh. 26 - Prob. 1IAPA
Ch. 26 - Prob. 2IAPACh. 26 - Prob. 3IAPACh. 26 - Prob. 4IAPACh. 26 - Prob. 5IAPACh. 26 - Prob. 6IAPACh. 26 - Prob. 7IAPACh. 26 - Prob. 8IAPACh. 26 - Prob. 9IAPACh. 26 - Prob. 10IAPACh. 26 - Prob. 1MCQCh. 26 - Prob. 2MCQCh. 26 - Prob. 3MCQCh. 26 - Prob. 4MCQCh. 26 - Prob. 5MCQCh. 26 - Prob. 6MCQCh. 26 - Prob. 7MCQCh. 26 - Prob. 8MCQ
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- During the most recent recession, some economists argued that the change in the interest rates that comes about due to deficit spending implied in the demand and supply of financial capital graph would not occur. A simple reason was that the government was stepping in to invest when private firms were not. Using a graph, explain how the use by government in investment offsets the deficit demand.arrow_forwardSuppose government moves to increase its budget deficit by $30 million. With the aid of the market for loanable funds diagram, illustrate the impact of this government spending. From the diagram drawn carefully explain what happens to: rate of interest private spending . national savingsarrow_forwardUsing a graph representing the market for loanable funds, show and explain what happens to interest rates and investment if: a reduction in military spending moves the government’s budget from deficit into surplus.arrow_forward
- Textbook: Macroeconomics by P. Krugman & R. Wells (5th Edition) Using the accompanying diagram, explain what will happen to the market for loanable funds when there is a fall of percentage points in the expected future inflation rate. How will the change in the expected future inflation rate affect the equilibrium quantity of loanable funds?arrow_forwardConstruct the market for loanable funds and use it to illustrate and explain each of the following:a) How an increase in the government budget deficit will affect equilibrium interest rate and investment spending of firms, other factors constantb) How an increase in household savings as they become more financial literate will affect equilibrium interest rate and investment spending of firms, other factors constantc) How an increase in business confidence will affect equilibrium interest rate and investment spending of firms, other factors constant.arrow_forwardSuppose the government borrows $20 million more next year than this year. a. Draw and fully label a diagram to illustrate the market for loanable fund to analyze this policy. Does the rate of interest rise or fall? What happens to investment? To private savings? To public savings? To national savings?arrow_forward
- Use the analysis for the market for loanable funds diagrams to examine and explain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1 Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.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 the graph of the effect on the equilibrium in the loanable funds market when corporate taxes increase. Does the demand for loanable funds increase or decrease? Does the interest rate increase of decrease?arrow_forward
- Suppose government moves to increase its budget deficit by $30million. With aid of the market for loanable funds diagram, illustrate the impact of this government spending. From the diagram in the above carefully explain what happens to : Rate of Interest Private spending National savingsarrow_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_forwardSuppose government moves to increase its budget deficit by $30 million. With the aid of the market for loanable funds diagram, illustrate the impact of this government spending.arrow_forward
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