Please help ! The federal government in the United States has been running very
ID: 1191356 • Letter: P
Question
Please help !
The federal government in the United States has been running very large budget deficits. The graph for the loanable funds market can be used to illustrate the effect of an increase in budget deficits. The graph on the right shows the market for loanable funds with demand curve for loanable funds, D_1 and the supply curve of loanable funds, S_1. The loanable funds market is initially in equilibrium at point A. Use the line droning tool to draw a new demand or supply curve for loanable funds to illustrate he effect of a federal budget deficit. Label the graph D_2 or S_ as appropriate. Use the point drawing tool to locate the new equilibrium point. Label this point 'B'. Then, suppose that households believe that deficits will be financed by higher taxes in the near future, and households increase their saving in anticipation of paying those higher taxes. When the government begins to run a budget deficit, the equilibrium interest rate increases and The quantity of loanable funds decreases. savings and investment decrease. the supply of loanable funds curve shifts to the left. all of the above hold true. When households increase their savings in anticipation of future tax increase, all of the following hold, except that a savings and investment increase. the supply of loanable funds increases and the supply curve shifts to the right, the equilibrium interest rate falls and quantity of loanable funds increases. investment declines.Explanation / Answer
When the government begins to run a budget deficit, the equilibrium interest rates increase and the quantity of loanable funds decreases.
When households increase their savings in anticipation of future tax, increase, all of the following hold, except that the equilibrium interest rate falls and quantity of loanable funds increase.