A government surplus can decrease investment through the crowding-out effect because the surplus decreases the quantity supplied of loanable funds." Is this statement correct? Explain with words + graph(s)
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A government surplus can decrease investment through the crowding-out effect because the surplus decreases the quantity supplied of loanable funds." Is this statement correct? Explain with words + graph(s)
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- Give two examples each of revenue receipts and capital receipts in a financial budget.Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. If the question prompts you to "Calculate," you must show how you arrived at your final answer. Suppose that the United States government implements a fiscal policy that increases the budget surplus. (a) Draw a correctly labeled graph of the loanable funds market and show the effect of the increase in the budget surplus on the equilibrium real interest rate. (b) The European Union is a major trading partner of the United States. Given your answer in part (a) about the real interest rate, will the United States dollar appreciate or depreciate against the euro? Explain. (c) Suppose that the Federal Reserve, the central bank of the United States, decides to offset the change in the value of the dollar identified in part (b). (i) Would the Federal Reserve buy or sell the euro? (ii) Would…The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place The real interest rate is Investment is $ billion. There OA. is, HI percent a year crowding out in this situation because OB. is no the deficit increases the real interest rate, which decreases investment investment is $7.0 billion Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds demanded supplied (billions of 2007 dollars) 8.0 7.5 7.0 6.5 6.0 5.5 5.0 5.0 5.5 6.0 6.5 7.0 7.5 8.0
- The table sets out the data for an economy when the government's budget is balanced. The quantity of loanable funds demanded increases by $1.5 billion at each real interest rate and the quantity of loanable funds supplied increases by $0.5 billion at each interest rate. If, at the same time the government budget becomes a deficit of $1.0 billion, what are the real interest rate and investment? Does any crowding out occur? >>> Answer to 1 decimal place. The real interest rate is C ... percent a year. Investment is $ billion. There crowding out in this situation because O A. is; OB. is no; the deficit increases the real interest rate, which decreases investment investment is $6.5 billion. Real interest rate (percent per year) 4 5 6 7 8 9 10 Loanable funds Loanable funds supplied demanded (billions of 2007 dollars) 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.5 5.0 5.5 6.0 6.5 7.0 7.5explain on a graph what would happen if the government discouraged investment through tax policy and explain your answersQ.1 Assume that the equilibrium in the loanable funds market is at an interest rate of 4% and the total quantity of loans is $600 billion. In addition, in this initial situation, the government is borrowing $60 billion per year to fund the budget deficit. (a) How much is private investment in this initial equilibrium? (b) Now the government increases spending by $300 billion per year and finances this spending completely with additional borrowing. i. Draw a graph to show how the additional borrowing would change the market for loanable funds. ii. Assume that the new equilibrium is at $700 billion and assume complete crowding out. Determine the amount that each component of GDP changes (C, I, G and NX), assuming no change in net exports.
- Economists that favor balanced budgets warn against increases in government spending without a corresponding increase in taxes. Modify the graph to illustrate effect of this change to the public budget on the market for loanable funds, according to these economists. Real interest rate Demand Supply X Quantity of loanable funds Select all of the factors that will be reduced as a result of this change in the public budget. labor productivity domestic investment imports capital inflowsAssumed that the governemnt maintained a balance budget initially.However, the financial secretary underestimated the recovery of local economy and the budget surplus is resulted.How does the budget surplus affect the loanable fund market? How does this market restore the equilibrium? How is the ‘private sector spending’ affected by the ‘public sector spending’? Explain and illustrate with a well-labelled diagram.Which graph shows the effect of a government budget deficit on the loanable funds market? Real Interest rate Real Interest rate Supply Increased demand Old demand Quantity of loanable funds Decreased supply Old supply C DELL 910
- Amid the global pandemic, economic activity in many countries in the world decreased substantially causing a significant reduction in tax revenues. Mexico had a projected a budget deficit of $20 billion dollars. Assume that the government of Mexico borrowed $20 billion more from the market for loanable funds. Answer both parts below assuming that Mexico is a closed economy. a) Use a diagram for the market for loanable funds to analyze this policy. Does the interest rate rise or fall? What happens to investment and national saving? Note: make sure you label your diagram properly. b) 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 this change the results you discussed in part (a)? + v В I U A 川、 ParagraphUsing a graph representing the market for loanable funds, show and explain what happens tointerest rates and investment if a government goes from a deficit to a surplus.What is The Effect of a Government Budget Deficit on Investment?