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Hello, please help me with this, I continue to get it incorrect. 4. The market for loanable funds and government policy The following graph shows
Hello, please help me with this, I continue to get it incorrect.
4. 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.) (? O- Demand Supply 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 an increase in the tax rate on interest income, from 20% to 25%. See all photos Add to Shift the appropriate curve on the graph to reflect this change. Choices for the drop arrow lines are as follows: This change in the tax treatment of interest income from saving causes the equilibrium interest rate in the market for loanable funds to * and the Drop#1: fall, or rise level of investment spending to Drop#2: decrease, or increase 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. Drop#3: fall, or rise Drop#4: fall, or rise Shift the appropriate curve on the graph to reflect this change. The repeal of the previously existing tax credit causes the interest rate to * and the level of investment to Drop#5: surplus, or deficit Drop#6: decreases, or increases 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. Drop#7: fall, or rise This change in spending causes the government to run a budget , which national saving. Drop#8: crowding out, or increasing Shift the appropriate curve on the graph to reflect this change. This causes the interest rate to the level of investment spendingStep by Step Solution
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