2.

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 $1,320 million. Enter the amount for investment. Value National Income Account (Millions of dollars) Government Purchases (G) 300 Taxes minus Transfer Payments (T) 210 Consumption (C) 750 Investment (1) :l 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 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. V Private Saving 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 national saving. In your calculations, use data from the preceding table. National Saving (5) || 4 Complete the following 9 national income accounting identities to calculate private and public saving. In your calculations, use data from the initial table. Private Saving V Public Saving V H i Based on your calculations, the government is running a budget V . 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 (5) || 4 Complete the following the initial table. II 4 Private Saving || 3. g 3 Public Saving || 4 II I 3. g :1 Based on your calculations, the government is running a budget V . 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 (5) || 4 || 4 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 Based on your calculations, the government is running a budget V . 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 (5) || 4 || 4 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 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 national saving. In your calculations, use data from the preceding table. National Saving (5) || 4 || 4 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. V Private Saving Public Saving V deficit surplus Based on your calculations, the government is running a budget V . 4. Supply and demand for loanable funds The following graph shows the market for loanable funds in a closed economy. The upwardsloping orange line represents the supply of loanable funds, and the downwardsloping blue line represents the demand for loanable funds. /'\\ 13/" 1o - SUF'P'Y INTEREST RATE (Percent) U1 l I I I I I I I I I + Den~and 0 1 l | | l l | | l i 100 200 300 400 500 600 700 800 900 1000 LOANABLE FUNDS (Billions of dollars) V is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded Y Suppose the interest rate is 4.5%. 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 % . V is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded Saving erest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans 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 % . V is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded Y increases sulting in a V of loanable funds. This would encourage lenders to Y the interest rates they charge, thereby - nterest rate is 4.5%. Based on the previous graph, the quantity of loanable funds supplied is V than the quantity of loans V the quantity of loanable funds supplied and V the quantity of loanable funds demanded, moving the market toward the equilibrium interest rate of % . V is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded Suppose the interest rate is 4.5%. 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 % lesse demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded shortage surplus 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 % . V is the source of the demand for loanable funds. As the interest rate rises, ntity of loanable funds demanded Y Suppose the interest rate is 4.5%. 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 % . V is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded Y increasing terest rate is 4.5%. 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 % . V is the source of the demand for loanable funds. As the interest rate rises, the quantity of loanable funds demanded Y increasing Suppose the interest rate is 4.5%. 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 Supply ---------+ INTEREST RATE (Percent) Demand LOANABLE FUNDS (Billions of dollars) Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , V the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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 rel e period. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , V the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of saving causes the equilibrium interest rate in the market for loanable funds to V and the level of investment spending to V . Scenario 2: nt tax credit effectively lowers the tax bill of any firm that purchases new capital in the relevant time period. Suppose the government a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , V the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the 'n ent significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , V the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increa ing on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to V , V the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. Shift the appropriate curve on the graph to reflect this change. - surplus This causes the interest rate to V , V the le . stment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the government to run a budget Y , which V national saving. decreases Shift the appropriate curve on the graph to reflect this change. increases This causes the interest rate to V , V the level of investment spe . Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes - - - ernment to run a budget Y , which V national saving. Shift the appropriate curve on to reflect this change. This causes the interest rate to V , V the level of investment spending. Scenario 1: Suppose savers either buy bonds or make deposits in savings accounts at banks. Initially, the interest income earned on bonds or deposits is taxed at a rate of 20%. Now suppose there is a decrease in the tax rate on interest income, from 20% to 15%. Shift the appropriate curve on the graph to reflect this change. This change in the tax treatment of 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. Suppose the government implements a new investment tax credit. Shift the appropriate curve on the graph to reflect this change. The implementation of the new tax credit causes the interest rate to V and the level of saving to V . Scenario 3: Initially, the government's budget is balanced; then the government significantly increases spending on national defense without changing taxes. This change in spending causes the gov I u -. u a budget Y , which V national saving. crowding out increasing This causes the interest rate to V , V the level of investment spending. Shift the appropriate curve on the gra: change