Explain and show graphically how a decrease in government spending affects the equilibrium interest rate and equilibrium quantity of loanable funds in the market for loanable funds
What will be an ideal response?
When government spending decreases, government saving (T - G - TR) rises. This increase in government saving shifts the supply curve for loanable funds to the right, decreasing the equilibrium interest rate and increasing the equilibrium quantity of loanable funds, as shown below.
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A repurchase agreement of government securities by the Fed
A) permanently increases bank reserves. B) temporarily increases bank reserves. C) permanently reduces bank reserves. D) temporarily reduces bank reserves.
In the market for widgets, the supply curve is the typical upward-sloping straight line, and the demand curve is the typical downward-sloping straight line. The equilibrium quantity in the market for widgets is 200 per month when there is no tax. Then a tax of $5 per widget is imposed. As a result, the government is able to raise $800 per month in tax revenue. We can conclude that the equilibrium
quantity of widgets has fallen by a. 40 per month. b. 50 per month. c. 75 per month. d. 100 per month.
Which bond is likely to have higher interest rate due to a higher default risk?
a. A share of stock issued by Apple. b. A corporate bond issued by Apple. c. A junk bond. d. A U.S. government bond.
A Swiss company sells chocolates to a retailer in the United States. These sales by themselves
a. decrease U.S. net export and Swiss net exports. b. decrease U.S. net exports and increase Swiss net exports. c. increase U.S. and Swiss net exports. d. increase U.S. net exports and decrease Swiss net exports.