According to the basic loanable funds model, all else equal, a rise in government spending will: cause output to rise. cause real interest rates to rise. cause savings to rise. cause investment to rise.
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- 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 inflowsCollaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market. look at image for graph What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will increase because the cost of borrowing increases. decrease because the cost of borrowing increases. decrease because the cost of borrowing decreases. increase because the cost of borrowing decreases.Which of the following will cause the supply of loanable funds to curve shift leftward
- 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、 ParagraphSuppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. Complete the following tasks. a. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model. b. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 – 50r. Clearly explain how the economy moves to the new equilibrium and compute the new equilibrium values of C, I, and r. What are the new values of private saving, public saving, and national saving? Use the graph you sketched in a) to illustrate and explain the change in the economy. c.…Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model.
- Suppose that the classical model of loanable funds displays the following characteristics. GDP (Y) is 5,000 while consumption (C) is given by the equation C = 1,200 + 0.3(Y – T) – 50r, where r is the real interest rate, in percent. Investment (I) is given by the equation I = 1,500 – 50r. Taxes (T) are 1,000, and government spending (G) is 1,500. a. What are the equilibrium values of C, I, and r? What are the values of private saving, public saving, and national saving? Sketch the equilibrium in the long-run loanable funds model. (Answered in previous question on my page) b. Now assume there is a technological innovation that makes business want to invest more. It raises the investment equation to I = 2,000 – 50r. Clearly explain how the economy moves to the new equilibrium and compute the new equilibrium values of C, I, and r. What are the new values of private saving, public saving, and national saving? Use the graph you sketched in a) to illustrate and explain the change in the…In the Savings-Investment model, what is the effect of an increase in government spending on investment? Why?Which of the following policies can the government implement to stimulate investment? Group of answer choices Reduce taxes on interest income or capital gains Accelerate businesses' depreciation allowances Reduce budget deficits All of these are correct
- A rise in the interest rate would cause a (Click to select) v on the Demand of Loanable Funds (Investment function).Based on the Ricardian Equivalence, explain the impact of the debt-financed tax cut on public saving, private saving, and national saving.Which of the following are part of Keynes' critique of the loanable funds model? Choose all that apply. Saving is a passive residual of income, not a function of interest rates Savings drives investment, not the other way around Investment is a function of income, not of interest rates Investment decision are made facing a fundamental uncertainty about the future Saving does not equal investment at the macroeconomic equilibrium Investment is determined by expectations of the future and expected profitability, not the pool of savings available to be lent or interest rates