Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 1.A, Problem 3AP
To determine
Construct an equation and predict the savings.
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The Atlantic Investment Tax Credit is a 10% tax credit
available to businesses that make specific investments in
the Atlantic region and the Gaspe Peninsula. The graph
shows the market for loanable funds.
Show the impact of this tax credit by moving the proper
curve appropriately in the graph.
The new equilibrium interest rate is
The quantity of loanable funds is $
1
Incorrect
5
Incorrect
I
billion
Which statement accurately describes the impact of
the Atlantic Investment Tax Credit?
%
Firms find that more investments are profitable and
increase their demand for loanable funds. As a
result, the interest rate rises.
Interest rate (%)
10
10
3
2
0
0
5
10 15 20 25 30 35
Quantity of loanable funds (in billions)
40
Supply
45
Demand
50
Please use the graph to answer the questions.
Given the market conditions, what will the prevailing
interest rate be?
O 6%
18%
O 2%
10%
Given the market conditions, how much money is
borrowed in the loanable funds market?
O $10 billion.
$50 billion
O$90 billion
O $70 billion
$30 billion.
Interest rate (%)
18-
16-
14-
12.
10.
8-
6-
+
et
0
Demand
Supply
60 70 80 90
10 20 30 40 50
Quantity of loanable funds (in billions of dollars)
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:
Ceteris paribus, private investment would
increase.
not change.
decrease.
%
20
10
9
Supply
8
Interest rate (%)
7
CO
5
LO
3
2
1
0
0
2
Demand
4 6 8 10 12 14 16 18 20 22 24 26 28
Quantity of loanable funds (% of GDP)
Chapter 1 Solutions
Microeconomics
Ch. 1.2 - Prob. 1QQCh. 1.2 - Prob. 2QQCh. 1.2 - Prob. 3QQCh. 1.2 - Prob. 4QQCh. 1.A - Prob. 1ADQCh. 1.A - Prob. 2ADQCh. 1.A - Prob. 3ADQCh. 1.A - Prob. 1ARQCh. 1.A - Prob. 2ARQCh. 1.A - Prob. 1AP
Ch. 1.A - Prob. 2APCh. 1.A - Prob. 3APCh. 1.A - Prob. 4APCh. 1.A - Prob. 5APCh. 1.A - Prob. 6APCh. 1.A - Prob. 7APCh. 1.A - Prob. 8APCh. 1 - Prob. 1DQCh. 1 - Prob. 2DQCh. 1 - Prob. 3DQCh. 1 - Prob. 4DQCh. 1 - Prob. 5DQCh. 1 - Prob. 6DQCh. 1 - Prob. 7DQCh. 1 - Prob. 8DQCh. 1 - Prob. 9DQCh. 1 - Prob. 10DQCh. 1 - Prob. 11DQCh. 1 - Prob. 1RQCh. 1 - Prob. 2RQCh. 1 - Prob. 3RQCh. 1 - Prob. 4RQCh. 1 - Prob. 5RQCh. 1 - Prob. 6RQCh. 1 - Prob. 7RQCh. 1 - Prob. 1PCh. 1 - Prob. 2PCh. 1 - Prob. 3PCh. 1 - Prob. 4PCh. 1 - Prob. 5PCh. 1 - Prob. 6PCh. 1 - Prob. 7PCh. 1 - Prob. 8P
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- 2. If disposable income is 4130, consumption is 2400, government spending is 431, and total taxes are 911, national saving is then equal to O 3650 O 3219 O 2210 O 819arrow_forwardSuppose total disposable income in Country X rises by $500 billion while total saving rises by $80 billion. What would be the slope of the consumption function for this nation? O 0.10 O 0.16 O 0.50 O0.84 0.90arrow_forwardA household has $6 in wealth, which allocates between consumption and savings. The MB from consumption is $1.96, 1.45, 1.31, 1.21, 1.13 and 1.07 from the 1st, 2nd..... unit of consumption C. If the interest rate is currently 10%, then the household's optimal consumption would be 04 O 3 O 5 6arrow_forward
- The following table shows the average nominal interest rates on six-month Treasury bills between 1971 and 1975, which determined the nominal interest rate that the U.S. government paid when it issued debt in those years. The table also shows the inflation rate for the years 1971 to 1975. (All rates are rounded to the nearest tenth of a percent.) Nominal Interest Rate Inflation Rate Year (Percent) (Percent) 1971 4.5 4.2 1972 4.5 3.3 1973 7.2 6.3 1974 8.0 11.0 1975 6.1 9.1 Source: "FRED Economic Data," Federal Reserve Bank of St. Louis, last modified September 23, 2019, accessed September 24, 2019, https://fred.stlouisfed.org. On the following graph, use the orange points (square symbol) to plot the nominal interest rates for the years 1971 to 1975. Next, use the green points (triangle symbol) to plot the real interest rates for those years. 8.0 7.0arrow_forwardYou have $40,000 of current income and $60,000 of future income. The interest rate between the current and future period is 5 percent. What is the maximum amount you could consume in the future? O $100,000 O $107,000 O $102,000 O $110,000arrow_forwardYou have heard about a new "green" light bulb that is costly to purchase but uses less electricity and thus allows you to save money on your utility bill. Suppose the new light bulb costs $10 today, but next year your electricity bill will be $50 lower. If the interest rate is 10%, what is the net present value of buying this new light bulb and using it for one year? O A. $40 B. -$45.45 OC. $55 OD. $35.45arrow_forward
- If consumers spend of a change in their disposable income, then a tax increase of $100 would lower saving by $40. O 20 percent 40 percent O 60 percent O 80 percent 70 percentarrow_forwardSuppose the real interest rate is 0%. Daniel worked for 60 years and he retired for 20 years. When Daniel had a job, his annual income was $10,000. During retirement, the annual pension he received was $6,000. Suppose Daniel smoothed consumption completely. What was the amount of savings Daniel had when he retired? O $16,000 O $120,000 $600,000 $60,000arrow_forwardTECHNICAL Suppose that permanent income is calculated as the average of income over the past five years – that is YP = (Y + Y-1 + Y-2 + Y-3 + Y-4 Suppose further that consumption is given by C = 0.9YP a. If you have earned $20000 per year for the past 10 years. What is your permanent income? b. Suppose that next year (period t + 1) you earn $30000. What is your new YP? c. What is your consumption this year and next year? d. What is your short run MPC and long run MPC? e. Assuming you continue to earn $30000 starting in period t+ 1, graph the value of your permanent income in each period using the initial YP equation provided above.arrow_forward
- 5. LO 2,5 A consumer receives income y in the current period and income y' in the future period, and pays taxes of t and t' in the current and future periods, respectively. The consumer can borrow and lend at the real interest rate r. This consumer faces a constraint on how much he or she can borrow, much like the credit limit typically placed on a credit card account. That is, the consumer cannot borrow more than x, where x < we-y+t, with we denoting lifetime wealth. Use diagrams to determine the effects on the consumer's current consumption, future consumption, and saving of a change in x, and explain your results.arrow_forwardFrom the diagram below we can see that: B 51.5 50 Julia's IC 0- 4950 Consumption now ($) Select one or more: O a. Julia would give up more than one unit of current consumption to get one additional unit of future consumption. O b. The marginal rate of transformation of future into current consumption is 1.5. c. Julia is indifferent between points A and B. O d. Julia values an additional unit of consumption now more highly than an additional unit of consumption later. Consumption later ($)arrow_forwardSuppose that the demand for loanable funds for car loans in the Milwaukee area is $12 million per month at an interest rate of 1O percent per year, $13 million at an interest rate of 9 percent per year, $14 million at an interest rate of 8 percent per year, and so on. If the supply of loanable funds is fixed at $18 million, what will be the equilibrium interest rate? Instructions: Enter your answer as a whole number. percent per yeararrow_forward
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