What happens to the demand for loanable funds

Assignment Help Macroeconomics
Reference no: EM13186036

1) An investment-tax credit provides businesses with a "credit" on their federal income-tax obligation that is proportional to the dollars spent on qualifying capital goods purchases during a given tax year. A 10% tax credit might work as follows. Consider the purchase of a new computer system for your company which costs $100,000. This investment would translate into a $10,000 credit (reduction) on taxes owed by the company at the end of the year. Thus a policy enacting an investment tax credit is expected to increase the demand for investment goods at every interest rate. What happens to the demand for loanable funds if there is an increase in the domestic demand for investment goods at every real interest rate?

2) Using the 3-graph model developed in chapter 14, consider first the impact on the demand for loanable funds. If businesses respond as expected to the investment-tax credit, what will happen to the demand for loanable funds? Given this, what, if any, change will there be in interest rates. If interest rates change, then what will the expected impact be on net capital outflow (net foreign investment)? A rise in the real interest rate causes net capital outflow (aka net foreign investment) to move in a negative direction. Think about this in the following way. As real interest rates in the US rise (relative to real rates in the rest of the world) the foreign demand for US assets rises. At the same time the US demand for foreign assets will fall because of the higher return available in the US. Both effects cause net foreign investment to move in a negative direction

Reference no: EM13186036

Questions Cloud

What are the different types of control systems : What are the different types of control systems What are some advantages and disadvantages of the various control mechanisms How does your organization use the steps of the control process
Prepare a paper on supercomputing : Consider any of the supercomputing examples we discussed in class, and find a scientific paper describing it. you must find an article in a valid IEEE or ACM publication (journal, conference, etc.)
What is the difference in euab - euac : Machine A costs $15,000, has $1,600 in annual operating costs, produces an annual benefit of $8,000, has a useful life of 7 years, and can be sold for salvage at the end of its useful life for $3,000. Machine B costs $25,00..
Article about forest health and wildlife habitat : An article about forest health and wildlife habitat. This article should either address a controversial issue or concern or present a unique approach to solving a relevant problem, 200-300 words.
What happens to the demand for loanable funds : Using the 3-graph model developed in chapter 14, consider first the impact on the demand for loanable funds. If businesses respond as expected to the investment-tax credit, what will happen to the demand for loanable funds Given this, what, if any..
Relationship with the customer : Why is Prius's success dependent on Toyota's relationship with the customer? Do you think Toyota has demonstrated their motto that "Customer is King/Queen" through development of the Prius? If so, how?
News-gathering gone too far : “You can’t have a free press without the press being free. This means uninhibited inquiry.” Vs “Decency should trump news-gathering that invades privacy, interferes with criminal investigations, and nothing to do with serving a public good.”
Single binary search tree : You must store the words and the counts of the words in a single binary search tree and each word occurring in the text can only be stored once in the tree
How will this policy affect national saving : Suppose Congress (in an attempt to stimulate the economy in both the short and long run) passes an investment-tax credit, which subsidizes domestic investment. How will this policy affect (comparing the state of the economy prior to the enactment o..

Reviews

Write a Review

 

Macroeconomics Questions & Answers

  Use the market-clearing real business cycle model

Use the market-clearing Real Business Cycle model developed in chapters 9-11, to analyze the effects of expectations of higher future government spending and (lump-sum) taxes. Under what conditions can this explain a slow recovery?

  Organization of promoting renewable power greenhouse gases

The government should not be in the organization of promoting renewable power, but should simply set a reasonable price on greenhouse gases

  Calculate a country money supply

Assume the entire economy contains $5000 worth of one-dollar bills. If people fail to deposit any of the dollars, but instead hold all $5000 as currency, how large is the money supply?

  Variables also spell out the assumptions

Variables also spell out the assumptions related to the use

  What are the consequences of your policy in terms of output

If Greece leaves the Euro zone there will be macroeconomic consequences. The possible collapse of the Euro zone acts as a shock to sellers around the world worried about international economic stability. Show the short run impact of such an event...

  Explain why is private property and the protection of proper

Explain why is private property and the protection of property rights, so crucial to the success of the market system.

  What is the income gap for the bank

What is the income gap for the bank? What will happen to profits next year if interest rates fall by 3 percentage points?

  Compute the price-cost margin for every firm

Compute the price-cost margin for every firm and indicate which has more pricing power and why.

  Elucidate the macroeconomic and microeconomic concepts

Elucidate the macroeconomic and microeconomic concepts and how they relate to the management of a global organization.

  Determine the amount of expense

You have the alternative of leasing an asset for $100,000 a year, with payments to be made at the end of each year of use. This lease cannot be cancelled.

  Gdp is falling also the economy is in a recession

You are the adviser to a Benevolent Social Planner. GDP is falling also the economy is in a recession.

  Equations for fiscal policy

The economy of a country called Econoland is described by the following desired aggregate expenditure components (all figures in billions of $). For the purposes of this question, the first set of equations will be referred to as fiscal policy1.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd