Foundations of Economics (8th Edition)
8th Edition
ISBN: 9780134486819
Author: Robin Bade, Michael Parkin
Publisher: PEARSON
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Chapter 26, Problem 9IAPA
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The reason for countries in Eastern Europe was required to reduce their spending than increasing by the IMF.
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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.
Would you please explain carefully several financial sources how the government financing
its expenditure and the policy in order to close its deficit?
what are the conventional and unconverntional ways to reduce a deficit and what are the related problems that could arise with these measures?
Chapter 26 Solutions
Foundations of Economics (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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- David Rubenstein mentions that stock and bond traders are not presently very worried about the increase in the federal deficit. However, he adds that they might become more concerned in six to twelve months. The accompanying diagram shows the market for loanable funds. Use the graph to show the effect of an increase in the federal deficit on this market. Real interest rate (%) Loanable funds ($) Supply Demand Why might traders be worried about the deficit increasing? The resulting change in the interest rate stocks and bonds - less valuable. will makearrow_forwardThe effects of a budget deficit can be offset by: a. External financing b. Crowding out c. A structural deficit d. All of the above Crowding out occurs when: a. Business investment increases due to lower interest rates b. There is an increase in business borrowing c. An increase in federal borrowing reduces private borrowing d. There is an increase in the nations’ savings If the government wanted to reduce inflation in the economy, it could: a. Increase income transfers b. Increase government spending c. Cut taxes d. Increase taxesarrow_forwardDue to Corona Virus epidemic in Bangladesh, Government tax collection has declined, but government’s expenditure did not, creating budget deficit. What are the ways government can finance the budget deficit? Do you think financing budget deficit will create inflation? Explain in detailsarrow_forward
- 3arrow_forwardhow should i shift the supply and demand curve?arrow_forwardSuppose 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_forward
- Analyze the challenges that the US economy is facing to reduce the deficitarrow_forwardUse the orange line (square point) to graph the new supply of loanable funds as a result of this government policy to borrow $20 billion more next year than this year. Interest Rate (Percent) 10 9 0 Demand 10 20 30 40 50 60 70 80 Loanable Funds (Billions of dollars) Supply As a result of this policy, the equilibrium interest rate rises 90 100 Public saving decreases by less than $20 billion. National saving decreases by less than $20 billion. Private saving increases by less than $20 billion. Investment decreases by more than $20 billion. The more elastic the demand for loanable funds, the Which of the following statements accurately describe the effect of the increase in government borrowing? Check all that apply. New Supply A more elastic supply of loanable funds would result in national saving changing by This belief would cause people to save This would ? as a result of the increase in government borrowing. the change in national saving as a result of the increase in government…arrow_forwardThe graph shows the private demand for loanable funds curve and the supply of loanable funds curve. Draw a curve that shows the effect on the loanable funds market when the government has a budget deficit. Label it C₁. Draw a curve that shows the Ricardo-Barro effect on the loanable funds market. Label it C₂. Draw a point at the new real interest rate and quantity of loanable funds. The Ricardo-Barro effect crowding out. Click the graph, choose a tool in the palette and follow the instructions to create your graph. 10 8- 6- 4- 2- Real interest rate (percent per year) SLF PDLF Loanable funds (trillions of 2009 dollars) >>> Draw only the objects specified in the question.arrow_forward
- Using 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_forwardThe accompanying graph represents the market for loanable funds in the hypothetical country of Bunko. Assume the market is initially in equilibrium and inflation expectations are 2%. a. Adjust the graph to demonstrate the effects of inflation expectations increasing from 2% to 4%. Market for Loanable FundsInterest rate (%)Quantity of loanable funds (billions of $)02468101214161820012345678910DS b. What is the real interest rate after the change in inflation expectations? 3% 2% 5% 7% c. Which effect below characterizes the relationship between inflation expectations and nominal interest rates? The Leontief Paradox The Inflation effect The Fisher effect The Pigou effectarrow_forwardWhat are implications for a government running deficits?How could that be effectively addressed?What are the ethical concerns of the deficit?arrow_forward
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