1.

1. Financial institutions in the U.S. economy Suppose Charles would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new laba practice known as V finance. Buying a bond issued by NanoSpeck would give Charles V the firm. In the event that NanoSpeck runs into financial difficulty, V will be paid first. Suppose instead Charles decides to buy 100 shares of NanoSpeck stock. Which of the following statements are correct? Check all that apply. [:1 The Dow Jones Industrial Average is an example of a stock exchange where he can purchase NanoSpeck stock. C] Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Charles's shares to decline. [:1 NanoSpeck earns revenue when Charles purchases 100 shares, even if he purchases them from an existing shareholder. Alternatively, Charles could make a financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a V interest rate than a U.S. government bond that matures 10 years from now. 1. Financial institutions in the U.S. economy Suppose Charles would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new laba practice known as V finance. Buying a bond issued by NanoSpeck would give Charles V the firm. In the event that - runs into financial difficulty, debt V will be paid first. Suppose instead Charles decides to buy 100 shares of NanoSpeck stock. Which of the following statements are correct? Check all that apply. [:1 The Dow Jones Industrial Average is an example of a stock exchange where he can purchase NanoSpeck stock. C] Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Charles's shares to decline. [:1 NanoSpeck earns revenue when Charles purchases 100 shares, even if he purchases them from an existing shareholder. Alternatively, Charles could make a financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a V interest rate than a U.S. government bond that matures 10 years from now. 1. Financial institutions in the U.S. economy Suppose Charles would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new laba practice known as V finance. Buying a bond issued by NanoSpeck would give Charles V the firm. In the event that NanoSpeck runs into financial difficulty, a claim to partial ownership in Suppose instead Charles decides to buy an IOU, or promise to pay, from Which of the following statements are correct? Check all that apply. [:1 The Dow Jones Industrial Average is an example of a stock exchange where he can purchase NanoSpeck stock. C] Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Charles's shares to decline. [:1 NanoSpeck earns revenue when Charles purchases 100 shares, even if he purchases them from an existing shareholder. Alternatively, Charles could make a financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a V interest rate than a U.S. government bond that matures 10 years from now. 1. Financial institutions in the U.S. economy Suppose Charles would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new laba practice known as V finance. Buying a bond issued by NanoSpeck would give Charles V the firm. In the event that NanoSpeck runs into financial difficulty, V will be paid first. ' Charles and the other bondholders the stockholders y 100 shares of NanoSpeck stock. correct? Check all that apply. [:1 The Dow Jones Industrial Average is an example of a stock exchange where he can purchase NanoSpeck stock. C] Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Charles's shares to decline. [:1 NanoSpeck earns revenue when Charles purchases 100 shares, even if he purchases them from an existing shareholder. Alternatively, Charles could make a financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a V interest rate than a U.S. government bond that matures 10 years from now. 1. Financial institutions in the U.S. economy Suppose Charles would like to use $6,000 of his savings to make a financial investment. One way of making a financial investment is to purchase stock or bonds from a private company. Suppose NanoSpeck, a biotechnology firm, is selling bonds to raise money for a new laba practice known as V finance. Buying a bond issued by NanoSpeck would give Charles V the firm. In the event that NanoSpeck runs into financial difficulty, V will be paid first. Suppose instead Charles decides to buy 100 shares of NanoSpeck stock. Which of the following statements are correct? Check all that apply. [:1 The Dow Jones Industrial Average is an example of a stock exchange where he can purchase NanoSpeck stock. C] Expectations of a recession that will reduce economywide corporate profits will likely cause the value of Charles's shares to decline. [:1 NanoSpeck earns revenue when Charles purchases 100 shares, even if he purchases them from an existing shareholder. Alternatively, Charles could make a financial investment by purchasing bonds issued by the U.S. government. Assuming that everything else is equal, a U.S. government bond that matures 30 years from now most likely pays a V interest rate than a U.S. government bond that matures 10 years from now. 2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $780 million. Enter the amount for consumption. Value National Income Account (Millions of dollars) Government Purchases (G) 200 Taxes minus Transfer Payments (T) 260 Consumption (C) |:] Investment (1) 280 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S) H 4 || 4 2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $780 million. Enter the amount for consumption. Value National Income Account ( Millions of dollars) Government Purchases (G) 200 Taxes minus Transfer Payments (T) 260 Consumption (C) Investment (1) 280 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. National Saving (S) = G - T million Y - C Y - T - G Y - C - G2. Saving and investment in the national income accounts The following table contains data for a hypothetical closed economy that uses the dollar as its currency. Suppose GDP in this country is $780 million. Enter the amount for consumption. Value National Income Account (Millions of dollars) Government Purchases (G) 200 Taxes minus Transfer Payments (T) 260 Consumption (C) I: Investment (1) 280 Complete the following table by using national income accounting identities to calculate national saving. In your calculations, use data from the preceding table. II { National Saving (S) H 4 Complete the following using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial tahlp, Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving || 4 million Public Saving V Based on your calculations, the government is running a budget V . Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. II 4 Private Saving million Public Saving II I a a 3 Based on your calculations, the government is running a budget V . Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving million Public Saving Based on your calculations, the government is running a budget V . Complete the following table by using national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving || 4 || 99 million Public Saving V deficit surplus Based on your calculations, the government is running a budget V . 3. The meaning of saving and investment Classify each of the following based on the macroeconomic definitions of saving and investment. Saving Investment Jacques takes out a loan and uses it to build a new cabin in Montana. O O Darnell purchases a corporate bond issued by a car company. O O Eleanor purchases new ovens for her cupcake-baking business. O O Kyoko purchases stock in NanoSpeck, a biotech firm. O O4. 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. 6 5 Supply 4 3 INTEREST RATE (Percent) 2 Demand 1 100 200 300 400 500 600 LOANABLE FUNDS (Billions of dollars)Y is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied V . Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans demanded, resulting in a V of loanable funds. This would encourage lenders to Y the interest rates they charge, thereby V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of \"/0 . Y is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied V . erest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans Investment ulting in a V of loanable funds. This would encourage lenders to Y the interest rates they charge, thereby the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of % . 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 the decreases pans demanded, resulting in a of loanable funds. This would encourage lenders to the interest rates they ch increases the quantity of loanable funds supplied and the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of %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 the quantity of loans demanded, resulting in a of loanable funds. This would encourage lenders to the ates they charge, thereby the quantity of loanable funds supplied and the quantity of loanable fu greater ded, moving the market toward the equilibrium interest rate of % lessshortage Y is the e supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied V . Suppose the interest rate sed on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans demanded, resulting in a V of loanable funds. This would encourage lenders to Y the interest rates they charge, thereby V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of % . Y is the source of the supply of loanable funds. As the interest rate falls, th y of loanable funds supplied V . Suppose the interest rate is 3.5%. Based on the previous graph, the quantity of loanable fu ied is V than the quantity of loans demanded, resulting in a V of loanable funds. This would encourage lenders to Y the interest rates they charge, thereby V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of % . Y is the source of the supply of loanable funds. As the interest rate falls, the quantity of loanable funds supplied V . increasing terest rate is 3.5%. Based on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans decreasing .ulting in a V of loanable funds. This would encourage lenders to Y the interest rates they charge, thereby V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of % . Y is the source of the supply of loanable fund I -rest rate falls, the quantity of loanable funds supplied V . increasing Suppose the interest rate is 3.5%. Based on the previous gra- y of loanable funds supplied is V than the quantity of loans decreasing demanded, resulting in a V of loanable funds. Th rage lenders to Y the interest rates they charge, thereby V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of % . 5. 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.) Supply Demand Simply ----------+ INTEREST RATE (Percent) Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , Y the level of investment spending. Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to V . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. S e government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , Y the level of investment spending. Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax a decrease ely lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previousl increase estment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , Y the level of investment spending. Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the gave a esponds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , Y the level of investment spending. Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of y significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , Y the level of investment spending. Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. deficit surplus . stment spending. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , Y the le Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the government to run a budget V , which V national saving. increases Shift the appropriate curve on the graph to reflect this change. - This causes the interest rate to V , Y the level of investment spe . Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes . - - ernment to run a budget V , which V national saving. Shift the appropriate curve on to reflect this change. This causes the interest rate to V , Y the level of investment spending. Scenario 1: Individual Retirement Accounts (IRAs) allow people to shelter some of their income from taxation. Suppose the maximum annual contribution to such accounts is $5,000 per person. Now suppose there is a decrease in the maximum contribution, from $5,000 to $3,000 per year. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to Y . Scenario 2: An investment tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government repeals a previously existing investment tax credit. Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to V and the level of investment to V . Scenario 3: Initially, the government's budget is balanced; then the government responds to the conclusion of a war by significantly reducing defense spending without changing taxes. This change in spending causes the gov I u -u - a budget V , which V national saving. crowding out change. This causes the interest rate to V , Y the level of investment spending. Shift the appropriate curve on the gra