Considering your answer in Q (2), the govt deficit increases. Explain why and also show the impact in the market of loanable funds using a graph. (40 words)
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- Loanable fund graph- show the result of a fiscal, crowding out and the effect on the supply of loanable fundsWhat is the effect of an increase in the tax rate on interest income on the supply of and the demand of loanable funds 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.The table given below shows an economy's demand for loanable funds and supply of loanable funds schedules when the government's budget is balanced. Real Interest rate (% per year) Loanable fund demanded Loanable fund supplied (Trillian of 2002 $) (Trillian of 2002 $) 8.5 5.5 8.0 6.0 75 6.5 7.0 7.0 6.5 7.0 9. 6.0 8.0 10 5.5 8.5 a. If the government has a budget surplus of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? b. If the government has a budget deficit of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? is there any crowding out in this situation? c. If the government has a budget deficit of $1 trillion and the Ricardo-Barro effect occurs, what are the real interest rate and the quantity of investment?
- Homework (Ch 23) 5. Impact of budget deficits The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that the financial industry is close to bankruptcy and the U.S. government decides to implement a bailout plan of several billion dollars without increasing taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. INTEREST RATE LOANABLE FUNDS Based on this model, the budget deficit leads to D $ 6 m D/ in the level of investment and in the interest rate.27) What is the most likely impact of an increase in the government budget deficit on the market for loanable funds? a) Overall demand for loanable funds decreases. b) Overall supply of loanable funds increases. c) Real interest rates fall. d) Private investment spending decreases.The table given below shows an economy’s demand for loanable funds and the supply of loanable funds schedules when the government’s budget is balanced. Real Interest rate (% per year) Loanable fund demanded (Trillian of 2002 $) Loanable fund supplied (Trillian of 2002 $) 4 8.5 5.5 5 8 6 6 7.5 6.5 7 7 7 8 6.5 7 9 6 8 10 5.5 8.5 1. If the government has a budget surplus of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 2. If the government has a budget deficit of $1 trillion, what are the real interest rate, the quantity of investment, and the quantity of private saving? Is there any crowding out in this situation? 3. If the government has a budget deficit of $1 trillion and the Ricardo-Barro effect occurs, what are the real interest rate and the quantity of investment?
- One objection to deficit spending is that it increases the demand for loanable funds thereby putting upward pressure on interest rates that crowds out private investment spending thereby lowering future U.S. growth. (1) What is the general level of interest rates in 2020?Please no written by hand solutions Currently, the U.S. has a total consumption of $21,300,000, savings of $9,700,000, government spending of $8,800,000, and investment of $6,800,000. Calculate the size of this government's budget deficit assuming net exports = net imports. $ Provide your answer as a whole number. Typed numeric answer will be automatically saved.Question 7 Refer to the following graph to answer the following questions: Line 1 Vertical Axis C Horizontal Axis a shift from line 1 to line 4. movement from B to A a shift from line 2 to line 3 D Assuming the figure represents the market for loanable funds, which of the following would represent a cut in corporate tax rates, causing business owners and managers to become more optimistic? movement from A to B a shift from line 3 to line 2 Line 4 Line 2 Line 3 Ⓡ
- Drawing diagram explain the process of “crowding out”. Also explain why the private sector might find budget deficit detrimental to their business planned projects.2. “Increase in net capital inflow will increase interest rates in the domestic loanable funds market” – do you agree with this statement? Explain by drawing a diagram and comment how you think investment will change if there is an increase in capital inflow.Question 28 Figure 26-2 The figure depicts a supply-of-loanable-funds curve and two demand-for-loanable-funds curves. INTEREST RATE LOANABLE FUNDS Supply D₂ Refer to Figure 26-2. Which of the following events would shift the demand curve from D₁ to D2? a. The government goes from running a budget deficit to running a budget surplus. b. Firms become optimistic about the future and, as a result, they plan to increase their purchases of new equipment and construction of new factories. C. A change in the tax laws encourages people to consume less and save more. d. A change in the tax laws encourages people to consume more and save less.Manipulate the graph to show what will happen to supply and demand in the market for loanable funds when the government budget deficit increases, changing the equilibrium quantity of loanable funds by 3 percentage points. Ceteris paribus, what is the new interest rate? interest rate: 6 Ceteris paribus, private investment would decrease. not change. increase. % Interest rate (%) 10 9 8 7 6 4 3 2 1 0 0 Supply 6 Demand 2 4 6 8 10 12 14 16 18 20 22 24 26 28 Quantity of loanable funds (% of GDP)