Suppose in a closed economy, the demand for loanable funds can be expressed as r =13...

Suppose in a closed economy, the demand for loanable funds can be expressed as

r =13 – 0.05Q and the supply of loanable funds can be expressed as r = 0.015Q, where r is the real interest rate expressed in percentage and Q is the quantity of loanable funds. Also assume the government initially has a balanced budget.

(a) What is the equilibrium real interest rate and quantity in the loanable funds market? Show your work. (10 points)

(b) Suppose a government’s budget surplus will change the supply for loanable funds to

r = -1.95 + 0.015Q, what is the equilibrium real interest rate and the quantity of loanable funds now? (10 points)

(d) What is the amount of the budget surplus? (10 points)

Solutions

Expert Solution

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

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...

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

Consider the economy where the demand for loanable funds from business and the supply of loanable...

Consider the economy where the demand for loanable funds from business and the supply of loanable funds from households (private savings) are: Demand: Q=1000-100r Supply: Q=200r-500 Q is the quantity of loanable funds and r is the interest rate. In both equations, the interest rate is expressed as a percentage (e.g. if the interest rate is 10%, then r in the equation would be 10) Assume this is a closed economy and that the government has a balanced budget. Holding...

If the demand for loanable funds shifts to the left and the supply of loanable funds...

If the demand for loanable funds shifts to the left and the supply of loanable funds shifts to the right, then the real interest rate rises. Select one: True False Question text In the open economy macroeconomic model of the U.S. economy, national savings is equal to the difference between domestic investment and net capital outflow. Select one: True False Suppose residents of the United States desired to decrease their purchases of foreign assets. Ceteris paribus, the real exchange rate...

Equilibrium in the loanable funds and goods markets: Suppose that the economy begins in equilibrium in...

Equilibrium in the loanable funds and goods markets: Suppose that the economy begins in equilibrium in the loanable funds and goods market. Then, the government decides to reduce its purchases without changing taxes. According to the Classical model: a) How do the supply and demand for loanable funds in the loanable funds market shift? Draw a diagram to show what happens to interest rates and investment in the new equilibrium. b) How do the supply and demand for goods in...

Using the loanable funds theory and the demand and supply of loanable funds, explain what will...

Using the loanable funds theory and the demand and supply of loanable funds, explain what will happen to the real interest rate in an economy if a recession occurs, such as occurred with the Covid19 pandemic.

why is the supply of loanable funds upward sloping? why is the demand for loanable funds...

why is the supply of loanable funds upward sloping? why is the demand for loanable funds downward sloping? Explain the equilibrium interest rate and graph the model.

Factors that affect the demand for loanable funds also affect the supply of loanable funds Question...

Factors that affect the demand for loanable funds also affect the supply of loanable funds Question 57 options: true false

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...

Subjects