Illustrate the effect of the federal budget deficits

Reference no: EM131023201

The federal government in the United States has been running large budget deficits.

a. Use a market for loanable funds graph to illustrate the effect of the federal budget deficits. What happens to the equilibrium real interest rate and the quantity of loanable funds? What happens to the level of saving and investment?

b. Now 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. Briefly explain how your analysis in part (a) will be affected.

Reference no: EM131023201

Questions Cloud

Describes juanita''s options for making her sales goal : The Candy Shack sells a particular candy in two different size packages. One size sells for $1.25 (each) and the other sells for $1.75 (each).If the store received $65.50 for 42 packages of candy. How many of each size were sold?

A pea plant with violet and axial flower : A pea plant with violet and axial flowers was crossed to a pea plant with yellow and terminal flowers (assume pure-breeding). All the F1 plants produced violet and terminal flowers. A self-cross of two F1 plant was performed.

Well-diversified portfolio-how much would the insurance cost : A fund manager has a well-diversified portfolio that mirrors the performance of the S&P 500 and is worth $510 million. The value of the S&P 500 is 1,700, and the portfolio manager would like to buy insurance against a reduction of more than 5% in the..

How a tax cut affects the level of gdp : You have the following information about two economists. Economist A examines how a tax cut affects the housing market. Economist B examines how a tax cut affects the level of GDP

Illustrate the effect of the federal budget deficits : Use a market for loanable funds graph to illustrate the effect of the federal budget deficits. What happens to the equilibrium real interest rate and the quantity of loanable funds? What happens to the level of saving and investment?

What is the best estimate of the stocks current market value : Nachman Industries just paid a dividend of D0 = $1.75. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year 3 and thereafter. The required return on this low-risk stock is 9.00%. What..

What is maximum loan wells fargo make result of transaction : Suppose that Deja owns a McDonald's franchise. She decides to move her restaurant's checking account to Wells Fargo, which causes the changes shown on the following T-account. If the required reserve ratio is 0.10, or 10 percent, and Wells Fargo ..

What is the minimum number of loaders needed now : Your objective is to minimize total slack capacity. What is the minimum number of loaders needed now and what are their schedules?

Value at risk for the portfolio : Consider a position consisting of a $200,000 investment in asset A and a $150,000 investment in asset B. Assume that the daily volatilities of both assets are 1% and that the coefficient of correlation between their returns is 0.35. What is the 5-day..

User Account

All Pages