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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Suppose the government borrows $20 billion more next year than this year.

a. Use a supply-and-demand diagram to analyze this policy. Does the interest rate rise or fall?

b. What happens to investment? To private saving? To public saving? To national saving? Compare the size of the changes to the $20 billion of extra government borrowing.

c. How does the elasticity of supply of loanable funds affect the size of these changes?

d. How does the elasticity of demand for loanable funds affect the size of these changes?

e. Suppose households believe that greater government borrowing today implies higher taxes to pay off the government debt in the future. What does this belief do to private saving and the supply of loanable funds today? Does it increase or decrease the effects you discussed in parts (a) and (b)?

(a):

To determine

The impact of government borrowing on interest rate.

Explanation

The savings is the revenue left after the spending. There are mainly three types of incomes and they are the private income, government income and the national income. The personal income refers to the income of the individual or the consumer. When the personal income tax is paid out of the income of the individual, the remaining part is known as the private savings.

The government savings is the savings left with the government after the different spending of the government. The income of the government is the tax revenue collected by the government. The spending of the government includes different spending of the public programs. The remaining portion of the government income after the spending is known as the government savings...

(b):

To determine

The impact on investment.

(c):

To determine

Effect of elasticity of supply of loanable fund.

(d):

To determine

Effect of elasticity of demand for loanable fund.

(e):

To determine

The impact of increased borrowings by the government.

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