Question

1. Due to the recent reduction in corporate income tax rates, we can expect investment spending to _____ and the equilibrium interest rate to ____, all else the same.

2.People become less confident in the state of the economy. This is likely to cause national saving to _____ and the equilibrium interest rate to _______.

3. When households experience an increase in wealth they will tend to ___ private saving and ____ consumption spending.

4. When the federal government increases the budget deficit, this causes national saving to ____ and the equilibrium interest rate to ____ in a closed economy.

Answer 1

1. increase increase
A reduction in the corporate income taxes will induce a positive spurt in investment since more funds will be demanded the equilibrium interest rates will go up.
2.increase decrease
When the economy is in contraction consumer confidence drops, as a result, the savings increase and this increases the supply of loanable funds thereby decreasing the interest rates.
3.decrease increase
When households have more wealth they start spending more and saving less.
4.decrease increase
When the budget deficit is increased by the government then the government is spending more than its revenues. This decreases the national savings and hence increases the investment rates.