Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affects the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. State, explain and draw the loanable funds diagram for i,ii and iii. (i) which which loanable funds curve would this policy affect? (ii) which way would the loanable funds curve shift? (iii) what would be the the impact on interest rates?
Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affects the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit. State, explain and draw the loanable funds diagram for i,ii and iii. (i) which which loanable funds curve would this policy affect? (ii) which way would the loanable funds curve shift? (iii) what would be the the impact on interest rates?
Chapter21: Financial Markets, Saving, And Investment
Section: Chapter Questions
Problem 6P
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Use the analysis for the market for loanable funds diagram to illustrate and explain how the following government policy affects the economy’s saving and investment. Policy 1: Suppose the government starts with a balanced budget and then, because of a tax cut or spending increase, starts running a budget deficit.
State, explain and draw the loanable funds diagram for i,ii and iii.
(i) which which loanable funds curve would this policy affect?
(ii) which way would the loanable funds curve shift?
(iii) what would be the the impact on interest rates?
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