Suppose that the government provides tax cuts for those who invest in new capital. Illustrate and explain how this increase in government spending affects investment and the real interest rate in equilibrium. Show a graph and explanation.
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Suppose that the government provides tax cuts for those who invest in new capital. Illustrate and explain how this increase in government spending affects investment and the real interest rate in equilibrium. Show a graph and explanation.
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- Explain what happens to savings, investment and the real interest rate in an economy if the government reduces its military spending.The graph illustrates the demand for loanable funds and the private supply of loanable funds when the government budget is balanced. In the graph, draw the supply of loanable funds curve if the government budget surplus is $0.2 trillion. Label the curve. Draw a point to show the new equilibrium real interest rate and quantity of loanable funds. >>> Draw only the objects specified in the question.Economists often argue that a large increase in government purchases – such as for the military – will crowd out private-sector spending. Use the investment-saving diagram to defend or to refute their premise.
- Explain what happens to consumption, investment, and the interest rate when the government increases taxes. Show graphically the effect of increased taxes when saving is not dependent on interest rate.Show on a graph of the market for saving and investment the effect of the following. (The graph is a basic savings and investment graph). In an effort to improve fiscal conditions, policymakers raise taxes. This results in lower disposable income. Real interest rate (percent per year) 10. 8 6 4 2 SLF 0 1.2 1.4 1.6 DLF 2.0 2.2 1.8 Loanable funds (trillions of 2009 dollars) The savings function [Select] The investment function [Select] The real interest rate [Select] The level of savings and investment [Select]Explain how changes in interest rates and rates of return on various investment options will affect the amount of money that businesses are willing to invest to increase output.
- Suppose a government decides to pass a tax cut, while keeping the level of government spending the same. How can the government finance the tax cut? What is the impact of the tax cut on public saving? Will private saving be affected and, if so, how? If households save most of (but not all) the tax cut, how will this affect investment? How will this affect the equilibrium interest rate? and why?Give written answer with explanation and conclusion A government policy that would reduce the saving rate is ? a) giving tax breaks to increase the real return that savers receive b) eliminating the social security system c) increasing the government budget surplus by cutting government spending d) switching the tax system to tax consumption instead of incomeexplain both in words and diagrammatically how the following government policy affect the economy’s saving and investment. Policy 1: Suppose the government passed a tax reform giving an investment tax credit to any firm building a new factory or buying a new piece of equipment.
- We have the following data from the loanable funds market for Berberistan. Answer the following questions. Real interest rate Loanable funds Loanable funds demanded supplied (percent per year) 3 (trillions of dollars) 10 4 4 9 5 5 8 6. 6 7 7 7 8 6 5 9 4 10 a) What is the equilibrium real interest rate, total private saving and investment? (suppose that the govemment budget is balanced.) b) What will be the equilibrium real interest rate if the govemment's budget becomes a deficit of $2 trillion? What will be the private investment at the new equilibrium? Define “crowding-out" and tell if there is crowding-out in this case.• Draw a correctly labeled graph of the loanable funds market. Label the equilibrium interest rate r1 and the quantity of loanable funds Qlf1. There is a figure in your textbook that you can use as a guide • Suppose the government borrows money to finance additional government spending. Which curve will be affected by the increased government borrowing and which direction will the curve shift? Show the effect on your graph above and label the new equilibrium quantity Qlf2 and the new equilibrium interest rate r2.Consider an economy described by the following equations: Y=C + I +G Y=7,000 G=4000 T=2,000 C=150+0.75(Y-T) I=1,000-50r In this economy, compute private saving, public saving and national saving. Calculate the equilibrium interest rate. Now suppose the G rises BY 1,000. Compute private saving, public saving, and national saving. Calculate the new equilibrium interest rate.