LOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of the" an increase eck all that apply. a decrease O An individual's share of the government debt represents only a small portion of his or H Inings. O Budget deficits increase national saving. Budget deficits place a burden on future taxpayers. O Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 6%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio. Grade It Now Save & ContinueLOANABLE FUNDS Based on this model, the budget deficit leads to V in the level of investment and V in the interest rate. which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. C An individual's share of the government debt represents only a small portion of his or her lifetime earnings. C Budget decits increase national saving. l: Budget decits place a burden on future taxpayers. C Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget decit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States income must be growing at a rate of- per year. B also n'ses. Therefore, as long as the nation's income grows V than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by approximately 6%. If the ination rate is 3% per year, this means that nominal minal income grows overtime, the nation's ability to pay back the national debt each year without increasing the debttoincome ratio. 6. Tax systems and saving This question addresses the impact of saving on an economy by examining what happens if tax laws change to induce saving and how changes in tax laws can discourage saving. The following graph shows the market for loanable funds. Show the impact of a change in the tax law that successfully encourages saving by shifting either the demand curve (D), the supply curve (S), or both. S D S INTEREST RATE D LOANABLE FUNDSO S D El E S ct l on UJ o: m l E D LOANABLE FUNDS A tax law change that successfully encourages saving will V interest rates, which leads to V investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising thirdyear in college, plans to save $600 from her summer job in order to buy,r textbooks for the upcoming fall semester. Madison's parents are so impressed with her plans that they:r offer to pailr her an additional 35% interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end of the summer, it turns out that Madison saved onlyr $500 (before the interest paid by her parents) from her job. This means that the V effect must be smaller than the V effect for Madison in this case. O S D S INTEREST RATE D LOANABLE FUNDS A tax law change that successfully encourages saving will interest rates, which leads to _ investment and economic growth. To better understand how changes in tax laws can affect s decrease ose that Madison, a rising third-year in college, plans to save $600 from her summer job in order to buy textbooks for the upcoming fa increase Madison's parents are so impressed with her plans that they offer to pay her an additional 35% interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end of the summer, it turns out that Madison saved only $500 (before the interest paid by her parents) from her job. This means that the effect must be smaller than the effect for Madison in this case.S D S INTEREST RATE D LOANABLE FUNDS A tax law change that successfully encourages saving will interest rates, which leads to investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising third-ye less llege, plans to save $600 from her summer job in order to buy textbooks for the upcoming fall semester. Madison's parents are so impress more her plans that they offer to pay her an additional 35% interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end of the summer, it turns out that Madison saved only $500 (before the interest paid by her parents) from her job. This means that the effect must be smaller than the effect for Madison in this case.D El E 5 r]: i on LIJ o: m i E D LOANABLE FUNDS A tax law change that successfully encourages saving will V interest rates, which leads to V investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising thirdyear in college, plans to save $600 from her order to buy textbooks for the upcoming fall semester. Madison's parents are so impressed with her plans that they offer to pay her an interest per month on the money she saves, which means that Madison is now earning a large rate of return on her saving. By the end substitution it turns out that Madison saved only $500 (before the interest paid by her parents} from herjob. This means that the v effect must be smaller than the V effect for Madison in this case. S D O S INTEREST RATE D LOANABLE FUNDS A tax law change that successfully encourages saving will interest rates, which leads to * investment and economic growth. To better understand how changes in tax laws can affect saving, suppose that Madison, a rising third-year in college, plans to save $600 from her summer job in order to buy textbooks for the upcor substitution ster. Madison's parents are so impressed with her plans that they offer to pay her an additional 35% interest per month on the money sl means that Madison is now earning a large rate of return on her saving. By the end income of the summer, it turns out that Madison saved only the interest paid by her parents) from her job. This means that the effect must be smaller than the effect for Madison in this case.5. Impact of budget deficits The following graph shows the loanable funds market in the United States. It plots both the demand (D) for loanable funds and the supply (S) of loanable funds. At the current equilibrium, the government is operating with a balanced budget. Assume now that concerns regarding resources available to public educators lead the government to increase education spending without raising taxes, causing a budget deficit. Show the effect of the budget deficit on the market for loanable funds by shifting the demand (D) curve, the supply (S) curve, or both. O S D S INTEREST RATE D LOANABLE FUNDSLOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of their position? Check all that apply. An individual's share of the government debt represents only a small portion of his or her lifetime earnings. O Budget deficits increase national saving. Budget deficits place a burden on future taxpayers. Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 6%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.LOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a suppo an increase ced budget make in defense of their position? Check all that apply. a decrease O An individual's share of the governmer Jents only a small portion of his or her lifetime earnings. Budget deficits increase national saving. O Budget deficits place a burden on future taxpayers. O Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 6%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio.LOANABLE FUNDS Based on this model, the budget deficit leads to in the level of investment and in the interest rate. Which of the following arguments might a supporter of a balanced budget make in defense of the an increase eck all that apply. a decrease O An individual's share of the government debt represents only a small portion of his or H nings. O Budget deficits increase national saving. O Budget deficits place a burden on future taxpayers. O Budget deficits crowd out private investment. Supporters of a balanced budget claim that the government's budget deficit cannot grow forever, but critics believe that this is not necessarily true. They argue that what matters is the size of debt relative to national income. For example, suppose that real output in the United States grows at approximately 6%. If the inflation rate is 3% per year, this means that nominal income must be growing at a rate of % per year. Because nominal income grows over time, the nation's ability to pay back the national debt also rises. Therefore, as long as the nation's income grows than the government debt, the level of debt can continue to increase without harming the economy. In this case, the nominal government debt can rise by % each year without increasing the debt-to-income ratio