(3) The French Government runs a budget deficit and finances it by borrowing $20 billion. Use the loanable fund model to show the decline in public savings and decline in investments (crowding out).
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- Assumed that the government maintained a balanced budget initially. However, the financialsecretary underestimated the recovery of local economy and the budget surplus is resulted. How does the budget surplus affect the loanable fund market? How does this market restore the equilibrium? How is the ‘private sector spending’ affected by the ‘public sector spending’? Explain and illustrate with a well-labelled diagram.Collaboration with Congress during the Clinton administration allowed for an aggressive deficit‑cutting plan to pass. At the end of the 1990s, Congress eliminated the government deficit. Manipulate the graph to illustrate how the elimination of the deficit affects the loanable funds market. look at image for graph What does the model predict will happen to the quantity of private investment as a result of elimination of the government deficit? Private investment will increase because the cost of borrowing increases. decrease because the cost of borrowing increases. decrease because the cost of borrowing decreases. increase because the cost of borrowing decreases.Suppose government moves to increase its budget deficit by $30 million. With the aid of the market for loanable funds diagram, illustrate the impact of this government spending.
- The table sets out the data for an economy when the government's budget is balanced. Real Loanable funds Loanable funds interest rate If the government's budget becomes a deficit of $1.0 billion, what are the real demanded supplied (percent per year) interest rate and investment? (billions of 2007 dollars) 4 7.5 4.5 Does crowding out occur? 7.0 5.0 6.5 5.5 ..... If the government's budget becomes a deficit of $1.0 billion, the real interest rate is 7 6.0 6.0 percent a year and the quantity of investment is $ >>> Answer to 1 decimal place. billion. 8 5.5 6.5 9. 5.0 7.0 10 4.5 7.5All other things equal, an increase in government borrowing will ________ a. shift the demand curve for loanable funds to the right, increasing interest rates. b. shift the supply curve of loanable funds to the right, decreasing interest rates. c. shift the demand curve for loanable funds to the left, decreasing interest rates. d. shift the supply curve of loanable funds to the left, but interest rates remain unchanged.Explain the government budget deficit and debt and how this can cause crowding out for loanable funds in the market.
- Using a graph representing the market for loanable funds, show and explain what happens tointerest rates and investment if a government goes from a deficit to a surplus.DONOT ANSWER QUESTION 1 ONLY 2, • Analyze the effects of a government budget deficit. • Examine how the interest rate is determined in a variety of scenarios. • Synthesize knowledge of saving, investment, and the financial system. Government budget and national saving: 1. Suppose that GDP equals $10 trillion, consumption equals $6.5 trillion, and the government spends $2 trillion and has a budget deficit of $300 billion. Please find public saving, taxes, private saving, national saving, an investment. The model of loanable funds: 2. Please use the loanable funds model to analyze the effects of a government budget deficit (you can attach a copy of your graph showing your work): A. Draw the diagram showing the initial equilibrium. B. Determine which curve shifts when the government runs a budget deficit. C. Draw the new curve on your diagram. D. What happens to the equilibrium values of the interest rate and investment?Suppose the government ran a budget surplus in 2018 and a larger surplus in 2019. The loanable funds model would predict that, as a result of the increase in the surplus, A. both the government debt and interest rates increased between 2018 and 2019. B. the government debt decreased and interest rates increased between 2018 and 2019. both the government debt and interest rates decreased between 2018 and 2019. C. D. the government debt increased and interest rates decreased between 2018 and 2019.
- Consider an economy in which GDP is $30 billion. Tax revenue is $7 billion, consumption is $15 billion, and the government has a budget surplus of $2 billion. Show your work in each of the following questions.(c) What is national saving?(d) What is the level of investment?Would you please explain carefully several financial sources how the government financing its expenditure and the policy in order to close its deficit?The current market rate of interest is 10 percent. At that rate of interest, businesses borrow $300 billion per year for investment and consumers borrow $50 billion per year to finance purchases. The government is currently borrowing $150 billion per year to cover its budget deficit. a. Derive the market demand for loanable funds, and show how investors and consumers will be affected if the budget deficit increases to $250 billion per year. Draw a graph to show your conclusion. b. Assuming taxpayers do not anticipate an increase in the future market rate of interest due to the increase in budget deficit, show the impact of the increase in the budget deficit on the market for loanable funds.
