Consider a closed economy’s market for loanable funds. a) Write down the equation that represents the...

Consider a closed economy’s market for loanable funds.

a) Write down the equation that represents the equilibrium condition for this market. What is the “price” variable in this market? How does it adjust to ensure equilibrium in this market?

b) Use the demand-supply diagram to illustrate the market for loanable funds, and make sure you label both axes and identify the equilibrium point on the graph. Use the graph to illustrate how an increase of government spending will affect savings, investments, real interest rate, and output. Explain crowding out effect using your results.

Expert Solution

Rahul Sunny answered 2 years ago

In an imaginary closed economy, the market for loanable funds is in equilibrium in which the...

In an imaginary closed economy, the market for loanable funds is in equilibrium in which the government is running a balanced budget. In equilibrium, GDP, consumption expenditure and government expenditure are $4,000 million, $2,500 million and $1,000 million, respectively. a. Calculate private saving, public saving, taxes and investment. b. In order to finance for additional expenditures in the future, suppose the government is running a budget deficit in which it raises fund through selling government bonds in the open market....

The following graph shows the market for loanable funds in a closed economy.

Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upward-sloping orange line represents the supply of loanable funds, and the downward-sloping blue line represents the demand for loanable funds. _______ is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied _______ . Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is _______ than...

4. Write out the equation for the demand and supply of loanable funds or the savings...

4. Write out the equation for the demand and supply of loanable funds or the savings identify. Use this equation/identity to briefly describe how changes in government budgets can affect the trade balance. Include any assumptions you make about the other components of the demand and supply of savings.

Write out the equation for the demand and supply of loanable funds in equilibrium. Use this...

Write out the equation for the demand and supply of loanable funds in equilibrium. Use this equation to briefly describe how changes in government budgets can affect the trade balance. Include any assumptions you make about the other components of the demand and supply of savings. Then explain the difference between a progressive tax, a proportional tax, and a regressive tax.

What is the impact on the loanable funds market if the quantity of loanable funds supplied...

What is the impact on the loanable funds market if the quantity of loanable funds supplied is less than the quantity demanded?

Consider a closed economy’s money market. a) Briefly define money supply and explain the measures of...

Consider a closed economy’s money market. a) Briefly define money supply and explain the measures of M1 and M2. What is a reserve requirement? Write down the formula for the money multiplier. b) Write down the formula associated with the quantity theory of money. Define all variables and comment how a 10% decrease in money supply would affect the economy using this theory. As a result, how much would the economy’s real GDP change?

Let assume an economy in this year with the following loanable funds (LF) market demand equation....

Let assume an economy in this year with the following loanable funds (LF) market demand equation. Demand: r=8-0.005*QD Where, r is the real interest rate (if r = 12 then the interest rate is 12%), QD in the quantity demanded of loanable funds (total investment). The government expenditures (G) is $300 billion, collected taxes (T) equal to $700 billion, and private saving is $800 billion. Calculate the value of government savings in this economy. Is the government running a budget...

In the open-economy market for loanable funds, the demand for loanable funds comes from A. domestic...

In the open-economy market for loanable funds, the demand for loanable funds comes from A. domestic investment B. the sum of domestic investment and net capital outflow C. net capital outflow D. national savings

The market for loanable funds and government policy The following graph shows the market for loanable...

The market for loanable funds and government policy The following graph shows the market for loanable funds. For each of the given scenarios, adjust the appropriate curve on the graph to help you complete the questions that follow. Treat each scenario separately by resetting the graph to its original state before examining the effect of each individual scenario. (Note: You will not be graded on any changes you make to the graph.) Demand Supply INTEREST RATE (Percent) LOANABLE FUNDS (Billions...

7. Consider the market for loanable funds, which curve shifts to which direction if there is...

7. Consider the market for loanable funds, which curve shifts to which direction if there is a decline in production technologies?

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