Macroeconomics
13th Edition
ISBN: 9780134735696
Author: PARKIN, Michael
Publisher: Pearson,
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Question
Chapter 30, Problem 15APA
(a)
To determine
Explain the effect of tax rate on capital income, if inflation rises.
(b)
To determine
Explain the effect of supply on loanable funds, if inflation rate increases.
(c)
To determine
Explain the effect of demand for loanable funds, if inflation rate increases.
(d)
To determine
Explain the effect of equilibrium investment, if inflation rate increases.
(e)
To determine
Explain the effect of equilibrium real interest rate, if inflation rate increases.
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Students have asked these similar questions
Harper is a short-lived human who only lives for two years: current year and next year. In the current year, Harper has an income of $189 and has to pay $36 in taxes. Harper expects that he can receive an income of $132 and has to pay $27 in taxes next year before he dies. The real interest rate between current and next year is 7%.
What is Harper's lifetime wealth (in $)? Round your answer to at least 2 decimal places
Show the effect on the real interest rate and equilibrium quantity of loanable funds of
a decrease
in the demand for loanable funds and
a smaller decrease
in the supply of loanable funds.
Draw a demand for loanable funds curve. Label it
DLF0.
Draw a supply of loanable funds curve. Label it
SLF0.
Draw a point at the equilibrium real interest rate and quantity of loanable funds. Label it 1.
Draw a curve that shows
a decrease
in the demand for loanable funds. Label it
DLF1.
Draw a curve that shows
a smaller decrease
in the supply of loanable funds. Label it
SLF1.
Draw a point at the new equilibrium real interest rate and quantity of loanable funds. Label it 2.
Why, other things remaining the same, does a rise in the real interest rate decrease the quantity of loanable funds demanded? The quantity of loanable funds demanded decreases because at a higher interest rate _______.
A. fewer projects have an expected rate of profit below the real interest rate
B. more projects have an expected rate of profit that exceeds the real interest rate
C. banks want to lend more
D. fewer projects have an expected rate of profit that exceeds the real interest rate
Chapter 30 Solutions
Macroeconomics
Ch. 30.1 - Prob. 1RQCh. 30.1 - Prob. 2RQCh. 30.1 - Prob. 3RQCh. 30.1 - Prob. 4RQCh. 30.1 - Prob. 5RQCh. 30.2 - Prob. 1RQCh. 30.2 - Prob. 2RQCh. 30.2 - Prob. 3RQCh. 30.2 - Prob. 4RQCh. 30.2 - Prob. 5RQ
Ch. 30.3 - Prob. 1RQCh. 30.3 - Prob. 2RQCh. 30.3 - Prob. 3RQCh. 30.3 - Prob. 4RQCh. 30.3 - Prob. 5RQCh. 30.4 - Prob. 1RQCh. 30.4 - Prob. 2RQCh. 30.4 - Prob. 3RQCh. 30.4 - Prob. 4RQCh. 30.4 - Prob. 5RQCh. 30 - Prob. 1SPACh. 30 - Prob. 2SPACh. 30 - Prob. 3SPACh. 30 - Prob. 4SPACh. 30 - Prob. 5SPACh. 30 - Prob. 6SPACh. 30 - Prob. 7SPACh. 30 - Prob. 8SPACh. 30 - Prob. 9SPACh. 30 - Prob. 10SPACh. 30 - Prob. 11SPACh. 30 - Prob. 12APACh. 30 - Prob. 13APACh. 30 - Prob. 14APACh. 30 - Prob. 15APACh. 30 - Prob. 16APACh. 30 - Prob. 17APACh. 30 - Prob. 18APACh. 30 - Prob. 19APACh. 30 - Prob. 20APACh. 30 - Prob. 21APACh. 30 - Prob. 22APACh. 30 - Prob. 23APACh. 30 - Prob. 24APACh. 30 - Prob. 25APACh. 30 - Prob. 26APACh. 30 - Prob. 27APACh. 30 - Prob. 28APA
Knowledge Booster
Similar questions
- 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 Screenshot attached thanksarrow_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_forwardChairman 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_forward
- 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_forwardCurrently the real interest rate is 1%. Expected future inflation rate was initially 3% but rose to 7% as a result of fiscal policy. After this change, according to the Fisher effect, the real interest rate will be Question: ______%,nominal interest rate will ______(rise to / fall to / stay the same at) ________%,and the equilibrium quantity of loanable funds will ______ (rise / fall / not change).arrow_forwardWhich of the following statement is false? A. Consumption smoothing occurs when people borrow and save to smooth consumption over their lifetime. B. When making decisions about savings and borrowing, households and firms care more about the nominal interest rate than the real interest rate. C. Fisher equation describes the relationship between nominal and real interest rates under the effect of inflation. D. Movement along the demand curve for loanable funds is caused by a change in the interest rate.arrow_forward
- Continue using the same environment for this question: Sheila lives for two periods. She earns $100 in the first period and $110 in the second period. She wants to consume exactly the same amount in both periods. The interest rate at which she can save and borrow is 10%. There is no inflation. Which of the following statements is true? A. Sheila’s lifetime consumption is greater than her lifetime income B. Sheila’s lifetime consumption is lower than her lifetime income C. Sheila’s lifetime consumption is equal to her lifetime income Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.arrow_forwardSuppose a handbill publisher can buy a new duplicating machine for $500 and the duplicator has a 1-year life. The machine is expected to contribute $550 to the year’s net revenue. What is the expected rate of return? If the real interest rate at which funds can be borrowed to purchase the machine is 8 percent, will the publisher choose to invest in the machine? Explain.arrow_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_forward
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